The Myth of Price Per Square Foot

Every now and then, someone asks me to discuss what their home is worth as “price per square foot.” Fine, then. Here is my reasoning on why determining value by price per square foot is a myth.

Looking at value in terms of price per square foot is an attempt to make value an easily quantified number that is real. Example: the average price per square foot for sales of homes in the 90041 zip code over the last 3 months is: $504. Therefore, the home at 2014 Estes Road is 1735 square feet and the value calculates out to be $874,440.  

Great. Is that a real value? Should I list my home for, say, $869,000? Maybe, maybe not. Is it really “worth” that? I have a 14,000 square foot lot. Should I add in some value for that?  Or for my central air and heat? Or my view?

Maybe I should only look at homes that are similar to mine and figure the price per square foot from that.  This is where we have a problem. In the 90041 zip code, is there another home like mine? It’s architect designed, a midcentury modern, and has a weird floor plan that is nothing like the open plan that people want today. Big lot, mostly undeveloped. View. Original vinyl floors (What? Who wants that?), seven decks that need maintenance. The systems are pretty good—copper plumbing, central air and heat, updated 200 amp electric panel, newer roof. It’s only two bedrooms, but it has a den and a library and two full baths. It has two fireplaces, a wonderful if small formal dining room with lots of windows and a tree-top view, a fish pond, an outdoor spa.

Hmm. Is there another home in 90041 that is like mine? Is there one anywhere? Well, if we are looking at price per square foot, let’s just look at similarly sized homes. There are only three and the average price per square foot is $344, which makes my home worth  about $597,000. Well, that is not an accurate value!

Here is another way to look at it: the average price per square foot of properties under 1600 square feet is $575. The average price of properties over 1600 square feet is $414. So if my house is over 1600 square feet, that makes it worth $718,000. Well, I don’t like that value! I’m going to give myself a bonus for view and lot size.  Now I like this, that makes it $590 per square foot or $1,023,000! That must be what it is!

Does this sound like crazy thinking to you? I’ll bet it does sound crazy if your home is a “normal” 3-bedroom, 2-bath home in a good area with everything that everyone wants in a home today. You would probably say we should just take the average price per square foot and multiply it by your 2200 square feet and that gives us $1,109,000 and we are good to go.  Then why did your home sell for only $718,000?

Because price per square foot in a place like the 90041 zip code is not a realistic method of pricing homes! We might as well go with the Zillow Zestimate!  Nah, I don’t like that price, it comes out at only $835,570 today.

Why doesn’t price per square foot work in Eagle Rock? Because we are not a subdivision of similar homes.  Almost every home in the 90041 zip code was custom built. The span of vintage goes from roughly 1910 to 2012. The sizes vary from 600 square feet to almost 6000. How can you compare these using the price per square foot model? Answer: you can’t. Pricing is an art, not a science. Pricing a home to sell in this market is more about feeling than fact. How does the price of $799,000 make you feel about the house? I promise you, if you go to the same house but on a different day when it is priced at $699,000, you will feel differently about what the house has to offer you. Especially if when you go, there are 10 other people standing in the room with you whispering to each other about calling their Realtor to hurry over here.