Real Estate Appraisal Process | Price Per Square Foot Valuations?

What role do price-per-square-foot valuations play in the real estate and appraisal processes? Real estate agents often provide price-per-square-foot valuations when showing properties to homebuyers. But if their valuations differ from that of the appraiser, homebuyers can become confused and frustrated.

So are price-per-square-foot valuations really accurate measures of market value? It turns out that they can be, but not as often as people think.

In new neighborhoods, homes of the same model are regularly built with the same materials on similarly sized lots. Price-per-square-foot valuations can accurately judge such a home’s value.

But in seasoned neighborhoods, houses have undergone substantial renovations, upgrades and other changes. A valuation determined by using the price-per-square-foot range of recently sold homes in the neighborhood will differ from that determined by an appraiser.

During the appraisal process, an appraiser considers lot size, floor plan, location, views, finishes, layout, amenities, styling, number of renovations and more. The price-per-square-foot metric is just not nuanced enough to account for the many unique characteristics of most homes. But it can be a starting point.

“Appraisers, pay close attention to the price-per-square-foot range in a neighborhood,” appraiser Bryan Lundquist instructs on his appraiser blog. “Some appraisers treat price-per-square-foot as a meaningless metric, but it’s actually valuable. If your value does not fall within the range (especially the competitive price-per-square-foot range), it’s important to be able to explain that.”

If the appraiser’s judgement differs substantially from the neighborhood’s price-per-square-foot range, tell your mortgage applicants to ask their Realtor why. There lies their opportunity to understand a home’s true value.

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