Price Per Square Foot

[Jordan Stavrev]

Hi All! 

I'm an analyzing an REO in a neighborhood in my area and I have a question regarding square footage and calculating ARV. The comps are really small in square footage in comparison to my subject property so I'm having trouble analyzing this deal. I will put subject property info at the bottom as well as the supporting comps...maybe you guys can help me out? The subject property looks like it needs about 20K to 30K in repairs.

Subject Property: List Price - $174,000 | Beds: 3 Baths: 2 | Square footage: 2550

Comps (All within the last 180 days within Half a Mile Radius)

Comp  #1: Sold Price - $155,000 | Beds: 3 Baths: 2 | Square footage: 1051 

$104 PER SQ FT

Comp #2 Sold Price - $115,000 | Beds: 3 Baths: 2 | Square footage: 

$113 PER SQFT

Comp #3 Sold Price - $145,000 | Beds: 3 Baths: 2 | Square footage: 1222 

$118 PER SQFT 

Comp #4 Sold Price - $195,000 | Beds: 3 Baths: 2 | Square footage: 1818

$161.57 PER SQ FT

If I average out the price per square foot of all the properties, I have an average of $111 per square foot. 

If I multiply it by the square footage of my 2550 subject property that gives me an ARV of $283,000.

Would an appraiser adjust for the square footage difference this way? Thanks so much for your help in advance! 

[Mike H.]

I see those real estate agents on the million dollar listing shows talk about price per square foot. But here in my area, that just doesn't translate and it isn't how appraisers appraise homes.

If your house is 2,500 sq ft, you need to find sold comps within that range (2200 to 2800). If you can't, then go out a little bit more (say 2,000 to 2900) and do some adjustments. Thats what an appraiser will do.

And thats one of the real problems with appraisals. If they choose to find lower size comps, they can really hose your appraisal.

If you have a 2,000 sq ft home and then pull a bunch of 1,500 sq ft comps and give you 5k or 10k as an adjustment, you're in trouble. Its not going to hit your number. What I find extremely interesting is that appraisers almost never pull comps of homes that are bigger than the one they're appraising.

Just once I'd like to have a 1,500 sq ft home and get a bunch of 2,000 sq ft comps with 10k adjustments down.  That thing will appraise out amazingly well if they did that. But I can say that when the appraisal misses my numbers it is almost always because they are pulling comps that are 500 to 600 sq ft or more smaller and giving some lame adjustment. 

So like Joe mentioned above, you cannot use square footage metrics to determine your ARV. Go further back in time. Go further out in distance. But you need to find some comps of bigger homes in order to get a sense of the real value.