When shopping for a home, the question is often asked, “Should you use the average price per square foot or median price to figure home values?”
The answer is a tricky one. The short answer: neither are accurate methods of determining the current market value. An online article from about.com provides some insight:
Smaller square-foot homes generally command higher per-square-foot costs and larger square-foot homes generally command lower per-square-foot prices.
Let’s look at how square footage in a neighborhood is calculated. For example, say five homes sold in the Marina Street area. Three for $200,000 each. Property A was 1,000 square feet, and Properties B and C were 1,200 square feet. Two more homes sold a block away. Property D was $180,000 and 1,200 square feet, while Property E was $585,000 and 2,100 square feet. The average per-square-foot cost is $192.
I know what you’re thinking at this point – you just landed back in Algebra class, right? Let’s see if I can make it a bit clearer.
So what’s the difference between an average price and a median price? The median price is the middle price point. Half the homes sold above the median and half sold below the median. It is often used as a more accurate measure of value; although it’s better than average square footage pricing, especially when there are extremes. However, it, too, is not a clear picture. If you use the homes in the average price example above, the median price would be $167 per square foot.
Another extremely important factor to consider is that if you are using sold data then you are calculating numbers that are as much as three months old. In a quickly moving market, you are going to be out of step with the “current market values.”
The lesson here is this: It’s not wise to base the purchase price of a home you are going to buy on either median or average per-square-foot costs. That’s because each home is unique. The pricing per-square-foot or median ranges simply show you the trends. It can not, and should not, be used to compute market value or the price you would pay for a home.
Okay, this is the end of the lesson and I hope it was useful to you. The best solution to shopping for any home or selling your home and determining a good price to offer, is to find an experienced real estate professional. QCBN
Written by Don Bonnell
Realty Executives of Northern Arizona has nine separate offices represented by 130 real estate professionals. Trust them to provide the information you need to make a wise decision. Check the current listings at www.realtyexecutivesaz.com.
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