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Posted about 13 years ago

Pricing your next rehab: Using price per sq ft.

 Pricing your next rehab: Using Price per Square Foot

When it comes to pricing your next rehab for sale, there seems to be endless analysis involved, which by the way, can change in a matter of days.

One of the guidelines often used to determine a sale price is price per square foot. While this is not data to live or die by, it is important to know when to take price/ sqft into account and when it cast it aside.

Here is my personal litmus test for the validity of price/ sq ft for any one property:

1. Is the property located in a high-conformity neighborhood?

High conformity neighborhoods are areas in which homes are the same style, built within a few years of each other, or have similar territorial surroundings (eg. all have views or all do not).

If your property matches others in a high conformity neighborhood, pay close attention to the price per square foot of comparable properties. All else being equal, your property might be priced within 10% of the price/sq ft of the comparables in the neighborhood to be priced competitively.


2. Does your property have any unique features?

We all strive to add uniqueness to our rehabs to attract buyers, but in this case, I'm talking about pre-existing unique features that may make price/ sq ft an invalid guideline. These can be positive or negative.

Examples of unique features I've seen are built-in pools, a finished basement, location on a much smaller lot, etc. These features can make it difficult to rely too much on price per sq ft., because there is a unique aspect of the property that may be tough to quantify.

In this case, I usually take price per square foot into account, but with a grain of salt.


3. How does the quality of other homes in the neighborhood compare to yours?

This may seem like a silly question. Of course, you would seek out comparables that match the quality of your property, but with so many REOs on the market, this can be difficult in some neighborhoods. If you are having trouble locating comparables of similar condition within 1/4-1/2 mile radius, you may not want to hinge your price determination on price per sq ft. It stands to reason that the price per sq ft of a home in average condition would be much lower than a fully remodeled one, all else equal.

Hopefully, you've found this helpful. A good RE broker should be able to give you plenty of information with regard to the price per sq ft of comparables in your area. As homes sell or become active listings, it's smart to check for new comparables to keep your property priced competitively. 

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