How much is a foot worth?

By Ken Fears, Economist
National Association of REALTORS®

Not surprisingly, sales growth continued at a strong pace in the second quarter of 2005. It sounds like a broken record, but low mortgage rates, which averaged 5.7% during the second quarter of this year, and steady employment growth continued to fuel sales. During the second quarter, roughly 7,793 sales were recorded in the area covered by the Columbus Board of REALTORS®.

Prices have risen very fast over the last few years and it seems like almost every area in most cities has benefited from these gains. But how does one compare homes with similar amenities in the same area? Or how does one price two similar homes with unique additions? An obvious starting place is the size of the home. The average home measured roughly 1,745 square feet in the area covered by the Columbus Board of REALTORS®. But size may not paint the whole picture and basing pricing decisions on size alone can be deceiving.

A better measure for pricing the value of a home is the average price per square foot. Price per square foot can give a direct measure of the value of a home. The average price per square foot of a home in the area covered by the Columbus Board of REALTORS® is $101.

The price per square foot can provide insight into a decision to build an addition or finish a basement. In urban areas, beaches, or other areas of robust demand, the price per square foot can be very high, so finishing a basement, putting in an addition above a garage or parking spot, finishing a carriage house, or putting on a roof deck or balcony can add substantial value to a home. Conversely, in an area with a low price per square foot, there may be little pricing advantage or marketability to undertaking these creative uses of the property.

The price per square foot can also be used in marketing a home: Look at similar neighborhoods; a home with a price per square foot below that of similar neighborhood might indicate an up-andcoming neighborhood and a good place to buy.

Compare the price per square foot of your home with similar homes on the block or in the neighborhood?if your home is below the average price per square foot, then you could use this information in marketing your property as an underpriced value for the area.

Conversely, areas on the fringe of high priced neighborhoods may have negative characteristics that aren't easily remedied (e.g. airports, bad schools, or fire stations) and may weigh down the price per square footage. Pay attention to these trends and be weary of investing in such areas with the assumption that they are under priced.

However, when pricing, deciding to remodel, or marketing a home based on square footage it is important not to get carried away. Square footage is usable finished square footage. Building an addition just to expand square footage may not pan out and including unfinished space or misrepresenting square footage may cause you to loose credibility and customers.

The price per square foot is an important measure. It can be used to determine the base value of a home or creative ways to market a home or improve its pricing. Price per square foot can also help add light on how to price those idiosyncrasies that make some properties inherently unique, but whose additional value is hard to quantify. If used adroitly, the price per square foot is a valuable tool that will help you earn more money at the end of the day.