Price per SF — a caveat

In What About Downtown? I used recent sales prices on a per-square-foot basis to compare the downtown Austin area to other parts of the metropolitan area, and the contrasts are striking.  Price per SF can be an interesting yardstick for large comparisons, and I am asked about it frequently, but it is not a good way to consider the price of a specific home.

Within a narrow market segment — small market area, narrow range of sizes and ages, similar property condition, etc., $/SF can be an interesting shorthand, but it can also be misleading.  For example, consider one fairly homogeneous neighborhood in North Austin — Wells Branch.  I sampled sales over the past 90 days of homes 1,200 to 1,500 SF in size, built in the 1980s, and found an the average and median price per SF to be $163.44 and $164.07, respectively.  That shorthand doesn’t tell you that those sales ranged from $156.14/SF to $170.11/SF — a $14 variation.  In the middle of this sample — 1,350 SF — $14/SF can mean a price difference of $18,900!  That is not trivial.

I did a similar search in a slightly older South Austin neighborhood — Cherry Creek — and found three homes between 1,420 SF and 1,465 SF, built in 1976 and 1977, that sold in the past 90 days from $161.40/SF to $225.35/SF.  Actual MLS sales prices ranged from $230,000 to $320,000!  Those highest and lowest sales are less than 1,000 feet apart, just west of West Gate Blvd.

Many factors — size, age, condition, specific location (proximity to parks, pools, schools or to busy streets or railroad tracks) can make a huge difference in what a specific buyer will pay for a specific house.  Note too that price/SF can vary widely because of nothing more than floorspace.  If a lot is worth, say, $50,000, and there’s a 1,500 SF house on it, then

$50,000 / 1,500 SF = $33.33 per SF of the total price is land.

If there’s a 2,500 SF house down the street on essentially the same lot, then

$50,000 / 2,500 SF = $20.00 per SF of the total price is land.

The land’s contribution to the total price varies by $13.33 per SF in this example.

Returning to the beginning, knowing whether one area of the metro area is typically priced closer to $100/SF than to $500/SF can be enormously important in setting search priorities.  Whether you’re buying or selling, however, arriving at a desirable price for a specific property deserves careful analysis by a knowledgeable and active real estate professional.  Don’t take a shortcut in choosing or selling the most important financial asset most of us own.