Price Per Square Foot - The Appraiser Mindset
Updated: 2 days ago
As a Realtor you may be confused (or annoyed) about the way appraisers determine square footage adjustments for Gross Living Area (GLA). As you are probably aware, an appraiser estimate of price per square foot adjustment is almost always a lower value than what the Realtor feels is appropriate.
Most Realtors (and people in general) seem to consider price per square foot to be a simple process of dividing the sale price by the residence total gross living area. Appraisal reports reflect adjustments for all significant market driving factors in their analysis, of which GLA is just one of many.
Example 1 - Basic Condo Unit
The subject unit has no significant views and is 1000 square foot under air. A comparable sale has a prime ocean view and is 900 square foot. Let's say that the comp sold for $250,000. This puts the comp at a price per square foot of $278. The subject is 100 foot larger, so going strictly by price per square foot, the subject would be estimated to be worth $278,000.
Appraisers will adjust other differences first. In reality the adjustments are all simultaneous, but for the purposes of the discussion, it helps to think of it as being last in the process.
In this example let's say the view is worth $50,000 in the sub market. After adjusting for the view, the comp represents a value of $222 per square foot. Now the subject estimate is $222,000.
In reality there are usually many factors that must be adjusted before determining a price per square foot. For a condo you may have differences in floor location, garage or other parking spaces, balcony sizes, and of course condition/upgrade levels. Those are just some of the factors for properties in the same building, and comparison with units in other condominium complexes could have a myriad of additional appeal differences.
Example 2 - Single Family Detached Waterfront Home
Our comp property in this example is a single family home located on a corner point lot on the intracoastal. The site has 300 feet of linear front feet along the waterway, a lot size of 20,000 square feet, and a living area of 3,000 square feet. This home sold for $1,000,000. This home sold for $333 per square foot.
Now let's look at the subject home. It is located on a finger canal with only 100 feet of linear frontage, a lot size of 10,000 square feet, and a living area of 2,500 square feet. If we only look at price per sf then the subject is worth $333 x 2500 = $832,500.
The appraiser determination of price per sf will looking something like this: After reviewing other market activity, it is determined that intracoastal views command a premium in comparison to canal views of $75,000. The differences in lot size are found to be $20 per square foot. The linear footage is found to carry a premium of $100 per linear foot. What is our price per square foot adjustment considering only these factors?
$1,000,000 Sale Price
- $75,000 Superior View
- $200,000 Lot Size Variance ($20/sf x 10,000)
- $20,000 Superior Front Footage
$705,000 Net value
$705,000/3000 sf = $235/sf
The value for the subject is now estimated as $235 x 2500 = $587,500
The point of this article is that there are many factors besides GLA that should be considered when estimating using a price per square foot calculation. We suggest that you try stripping out value for all of the other major features that are not represented in the price per sf before you make your calculation. Common examples are things such as pools, garages, lot size, location appeal, view, condition, and upgrade levels. We believe you will find your estimates to be far more accurate when these other factors are considered in your calculations.
We hope you have found this article to be helpful. Our appraisers are based in Palm Beach County and are very familiar with all areas including West Palm Beach, Boynton Beach, Lake Worth, Lake Worth Beach, Lantana, Delray Beach and Boca Raton. We also cover northern Palm Beach County, Martin, and St Lucie.