Finding Your New Home – Consider “Apples to Apples” in Comparison Shopping!
When looking at real estate and comparison-shopping, it’s of utmost importance to “compare apples with apples”. Unfortunately, real estate data is typically not geared that way … and buyers can end up making incorrect assumptions as a result.
The price per square foot that you see on Websites like Realtor.com, Zillow and even the MLS is based on a formula that’s only meaningful for comparison shoppers if you’re looking among very similar properties – like for a 3 bedroom, 2 bath house with a garage in a residential neighborhood.
For example, if a listing shows $130/square foot for one such home and $100/square foot for the other, you can then focus on the differences between the two homes – features, appearance, functionality, etc.
But when a home has acreage as well as outbuildings and other features beyond the typical residential property, the price per square foot formula does not take the additions into account. Prospective buyers can be thrown off course by this fact, potentially way off course.
The formula for deriving price per square foot is actually pretty simple – divide the asking price for the property by the square footage of the house. The problem comes in when the property includes more than simply a house or a house and garage. That’s because only the house itself is factored into the price per square foot.
Put another way, if a home has 20 acres, a 10 stall horse barn, a tennis court, a second garage or workshop and other outbuildings, none of the buildings or the land get factored into the price. It’s as if they didn’t exist.
For properties that have acreage, multiple buildings and other amenities the price per square foot can thereby be very misleading. It can cause a prospective home buyer to dismiss a property that may actually be under-priced.
Using a real example from an MLS listing this farm/estate has:
• a spacious residence upstairs (2244 sq. ft.) with vaulted ceilings throughout for an even larger feel, along with a huge deck overlooking beautiful green space and woods
• a first floor apartment and office with full bath and kitchen (600 sq. ft.) and easily expandable to added interior space
• also downstairs is a large six stall, center aisle barn (1,644 sq. ft.) – with spacious box stalls and high ceilings plus ultra storm safe construction
• a free-standing extra roomy garage with metal roof and two extra access doors (700 sq. ft.)
• a detached heated/cooled multi-purpose “Great Room” building (725 sq. ft.) — perfect for entertaining, a home gym, a business location, an apartment for a relative or rental property (with addition of bath and kitchen), or still other uses … and with great views of the property
• an enormous workshop with built-in workbenches and cabinets along with a root cellar
• a mini barn for goats, hay storage or equipment
• PLUS 10 acres of beautiful property, with two pastures and woods
In this example the house is listed at a reduced price of $368,900. The heated/cooled square footage is 3500 ft.². Using the standard formula, this comes to $105 per square foot. Hard to believe but true: NO CREDIT is given for the multi-purpose great room, the garage, the workshop, the six stall barn, the mini-barn or the land … not to mention the solar system, board fencing throughout the property and still other appealing assets.
By comparison, a home of the same interior square footage and price but located on 3 acres with no garage, no workshop and a lean-to for horses instead of a barn will also be shown as $105 per square foot.
So what’s a buyer to do in figuring out pricing of alternative properties? First is to picture yourself living there and imagine the enjoyment and functionality you would get from the home. In other words, how well does a potential home meet your needs as a place to live?
In terms of pricing, think like an appraiser. They put a price per square foot on each building as well as a price per acre for the land. With a little bit of homework, you can do your own calculations of what would be reasonable based upon the market in your area. Looking at the example property above that would mean a price for the upper residence, a separate price per square foot for the apartment/office, a price for the multi-purpose room, and so on with all of the figures then added together … along with a price for the land.
Land-wise, factors affecting the price per acre include location, location location – as well as whether or not the property has road frontage (a plus), is it “high and dry” land (as opposed to wetlands or areas prone to flooding due to poor drainage), is it open or forested (do you have to spend money to clear it in order to use the property), does it have appealing views, does it have any extras (like fruit trees, hardwoods, etc.), is it within good range for fire and other emergency services?
Also, does the property have income-producing value? For instance, the Old Lloyd Road property noted above has the potential for renting out the apartment suite (which has been done in the past), the detached “Great Room” could be rented out as an office or as storage space (and the seller of this property is open to the idea of renting it from buyer), there’s the option of boarding horses, the sale of fruit from the well-producing fruit trees (as are currently sold at market), harvesting of pasture grasses to sell as hay. The income potential of a property also doesn’t get factored in when buyers are focused on the price per square foot.
“Running the numbers” on this sample property quickly reveals that it is notably underpriced according to market value — crucial information that a buyer could easily miss.
Yet another factor that can go unnoticed in price comparisons is the energy efficiency of the home. Energy bills can add up quickly and are well worth taking into account when buying a new home.
Sustainability is yet another factor – not only in terms of energy bills but also water use (with ownership of a well that the owner controls), land suitable for growing your own food, storm safe design and construction, building materials with reduced fire risk, building design and location for limited break-in potential, and other considerations for now and the future.
The bottom line tip for those seeking to buy a new home: be sure you are comparing apples with apples, don’t be fixated on price per square foot … and compare what the value of the home would be for meeting your specific needs.
2017 (c) Creative Realities, LLC