The Price per Square foot argument. It is not all that often but on occasion I do get a Buyer or two who are over enamored with the Price per Square Foot question.
Here is the Story.
After showing Bob and Sue this perfect little Condo in downtown Portland the other day they wanted me to send them some comps. I am always more than happy to do that as a well informed Buyer is a Happy Buyer. After viewing the comps Bob emails back and wants to make an offer based on his calculations using Square Feet.
So a little history about this property may be in order. First of all it is a Bank Owned ( REO ) property with a price tag at $54,500 is lower than any other Condo in the entire area. Secondly it is a Studio of about 388 SQ FT and had previously sold for $139,000. Third it is in a Building that Condo's do not often come up for sale. It is also the most popular floor plan in the building and has a Good Downtown Portland View on the third floor. Fourth foreclosures in this area are rare as the potential rents will often cover any mortgage payment.
Here is my email response to Bob and Sue.
In regards to price per square foot I may have a slightly different take on this than you.
During the appraisal process the value placed using Square Footage as measurement is rarely used in the Portland Residential market. It can come in to play if you were looking at, let's say 3 bedroom ranch homes and all of the comps were within a couple of hundred feet of each other say in the 1400 to 1600 square foot range. A house that would not be conforming would be the same 3 bedroom ranch but perhaps only had 1000 square feet or perhaps one that was 1900 square feet. Those two would not measure up given the square footage differed quite a bit from the subject property and the other relevant comps.
You mentioned that you purchased a home in the recent past so you have nothing more to do than to look at the apraisal done on your own home. Appraisers will often use 3 to 10 comps yet often there are more than 20 that could have been used. In Subdivisions built in the 70's as an example it is not uncommon to find hundreds of homes where square foot varies very little.
Once you start getting into the small one bedroom or studios properties like the property we are looking at from a value point of view the price per square foot is really not relevant as a measuring stick. Location matters, Style and Function matters, Condition matters and of course competition from other buyers matters a great deal.
From an Agents view and certainly from most Buyers competition from other Buyers is an important factor as it does indicate how others feel about the property. If the majority of buyers do not care for a property then activity will be drastically reduced or perhaps not any activity at all.
Most of todays Buyers who are actively looking are generally well informed. If a property comes on the market and the activity level is very high and generates multiple offers one can presume that it was not just a stroke of luck that everyone came to the same decision by pure luck of the draw.
Very active agents like my self will also pay attention to the market. As a regular routine I look at all the new properties daily to see if they will match any of the hundreds of people that I have in my Potential Buyer watch list. In General it is fair to say that most Agents are a very competitive bunch and do not want to get caught missing a good deal. It is not all about the money that we stand to make. It is more frequently about the competition and the sharing of that win with the lucky buyer who is able recognize and act on a good deal.
Have a wonderful day.
Herb
