Caution – Be Careful with your PPSF?

cautionWhat is PPSF anyway? It stands for Price Per Square Foot and is a GREAT tool for helping establish the value of a home. To get it, you take the asking price of a home and divide it by the number of square feet it has (air conditioned space only) and ta-da — you’ve got the price per square foot (PPSF)!

With PPSF, you can easily compare one home to another. This applies to homes that are available for sale as well as ones that have recently sold.  

A word of caution — PPSF is only good as a starting point! Why? There are lots of differences in properties that heavily influence what a proper price per square foot should be. Take a look at the example below.

  • House #1 is listed for $300,000 and has 1,000 square feet of living space so it’s ppsf is $300. 
  •  House # 2 (the one next door) is listed for $400,000 and also has 1,000 square feet so it’s ppsf is $400.

House #2 must be WAY overpriced! Right? The answer depends on a lot of factors. 

House #2 might have an awesome kitchen, a much larger lot or a brand new swimming pool, fancy outdoor summer kitchen and an awesome guest house.  Or…maybe the owner of house #2 is just dreaming! 

If you’re a buyer and trying to determine what a fair price for a house is, call a realtor that works in the area and ask for a list of recent comps (comparable sales).  In the tough real estate market that we’ve been experiencing, the list of comps can only be four months old or less. A local area expert has probably seen many of the homes on this list personally and can help you determine what the factors are affecting a home’s ppsf.

If you’re a seller and wondering what you might be able to sell your house for, it’s critical to know that buyers will be using the PPSF method to evaluate your home and you’d better be prepared to defend your price! Call someone who works in your area to get an honest opinion of what your PPSF should REALLY be!

Thanks for reading. I hope you’ll join me for my next discussion of real estate in the Avondale, Ortega and Riverside neighborhoods.