Why Price Per Square Foot Should Be Avoided When Calculating Market Value

Dated: January 27 2023

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Why Price Per Square Foot Should Be Avoided When Calculating Market Value

When it comes to determining the value of a property, many real estate professionals and homeowners turn to the price per square foot (PPSF) method. This calculation takes the sale price of a property and divides it by the total square footage to arrive at a dollar amount per square foot. However, while PPSF can be a useful tool in some cases, it is important to understand its limitations and why it should not be relied on as the sole indicator of a property's value.

PPSF does not take into account the unique features of a property

One of the biggest problems with using PPSF to calculate market value is that it does not take into account the unique features of a property. For example, a property with a large backyard, pool, and updated kitchen may have a higher value than a similar property without those features, even if the latter has more square footage. Similarly, a property in a prime location, such as a waterfront property or one in a highly sought-after neighborhood, will likely have a higher value than a comparable property in a less desirable location.

Additionally, PPSF does not consider the condition of a property. A property that has been well-maintained and updated will likely have a higher value than a similar property that is in need of repairs or upgrades. This is why it is important to take into account not just the square footage, but also the condition and unique features of a property when determining its value.

PPSF can be affected by market fluctuations

Another problem with using PPSF to calculate market value is that it can be affected by market fluctuations. For example, if a large number of similar properties are sold in a short period of time, the PPSF for that area may be skewed, making it difficult to accurately determine the value of a particular property. Additionally, if the market is experiencing a slowdown, PPSF may not be an accurate indicator of a property's value, as it may be artificially inflated due to a lack of available properties.

Furthermore, PPSF can also be affected by the type of properties that are being sold in a given area. For example, if a large number of luxury properties are sold in an area, the PPSF may be higher than it would be if only standard properties were sold. This is why it is important to consider the type of properties that are being sold in an area when using PPSF to calculate market value.

PPSF is not a good indicator of future value

Another limitation of using PPSF to calculate market value is that it is not a good indicator of future value. While PPSF can provide a snapshot of the current market, it does not take into account factors that may affect the value of a property in the future, such as changes in the local economy or new developments in the area.

Additionally, PPSF does not consider the potential for appreciation or depreciation. A property that is currently priced at a high PPSF may not have the potential for future appreciation, while a property that is currently priced at a lower PPSF may have the potential for significant appreciation in the future. Therefore, it is important to consider not just the current PPSF, but also the potential for future appreciation or depreciation when determining the value of a property.

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James Baker Jr

James: A Real Estate StoryJames had always been fascinated by the world of real estate. Ever since he was a young boy, he had been intrigued by the idea of buying and selling properties, and he spent ....

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