Helpful Tips, Home Values, Real Estate

Understand Property Values Foot-By-Foot

To understand real estate property values one measurement that’s mentioned frequently  is Price-Per-Square-Foot. Simply put it is the PRICE of your home divided by its AREA. In other words,  how much you are paying for each 12 inch by 12 inch square. Easy right? If you have ever hired a contractor or bought carpet, they probably gave you a quote based on the size of the job or AREA of the rooms.

The most important reason for buyers and sellers to use this calculation is so you can compare  homes of different sizes. If one home is twice the size as another similar property it’s PRICE should be twice as much.

Comparing homes by price per square foot can give us great insights far beyond mere structure. Certainly we get a feel for it’s condition, and the quality of it’s construction, but beyond that are the amenities & landscaping, location of the home, even the surrounding community. All these add up to the home’s desirability or its’ value.

But let’s expand our view. Are there vacant homes on this block? Does one family have junk cars and trash all over? What price value can we put on a superior school system in dollar terms? Are there parks, a library, medical facilities  and shopping nearby? How much is a lakefront property worth more than one with just a lake view?

Taken together, do these outside  factors of the surrounding community give the house more value or take some value away? Understanding the price-per-foot measurement can be used not just for individual homes, but also for specific price segments, micro-neighborhoods, subdivisions, even entire towns.

Here is an example of how prices have fluctuated in Portage Indiana over the past year, measured in price per square foot terms. Notice  a 10% drop occurred in the average from $103 to $93 last Winter, then recently there has been a modest rebound.

So what changed exactly?  What made homes suddenly less desirable,  then become more valuable again?    Obviously none of the homes changed location.   Did the local home center have a clearance sale on granite counter-tops?  Probably not.  But the desirability of Portage Indiana real estate did change, first down, then up again, as reflected in hard dollars. Since the homes themselves didn’t change much, we will have to blame those mysterious “market forces”.

In future posts we will further break down the components that create and bend  these forces in more detail. For now just understand that the large sized numbers of real estate prices can be scaled down to the size of a shiny piece of 12 inch glazed ceramic tile that you can hold in your hand.