My article two weeks ago on evaluating homes on a price per square foot basis created some controversy as a result of misinformation on my part and for that I apologize. The public website of Alaska MLS does NOT have a field for price per square foot and so that calculation is not available to the public and is not syndicated by MLS to other national portals. The price per square foot is available as a tool only to members of MLS. However, I stand by my premise that the tool is broken and price per square foot is often a very inaccurate way to value property either by real estate professionals or private buyers and sellers.
Price per square foot is a lazy person’s way of evaluating either a home or a piece of land. Let’s get away from the ‘home’ controversy and use another example. A lot is being considered for potential development as a small office building. It is properly zoned R0. Check. You hire an architect and his research indicates that the size of the building the client wants to build will fit on the lot. Check. You hire an engineer who tells you that you will need to pave the alley behind the property and that the MOA will take an additional 15 to 30 feet of frontage off the front of the lot for street improvements to full urban standards with curb, gutter and sidewalk. Also, he tells you after visiting with AWWU that the water pipe in the street is undersized and will have to be increased from six inch to eight inch plus the cost of the pigtails into the lot.
You really want this property and so you adjust your pro forma and keep going, spending dollars on due diligence. An environmental phase one shows a buried fuel tank and the home on the property built in l952 has asbestos. Maybe the fuel hasn’t spread too far. But, in the far northeast corner of the lot, there is a standing pool of water about three inches deep which MOA and the environmental engineer you’ve had to hire has designated as Class B wetlands. Not good. The lot is heavily forested and the cost for clearing is $15,000 per acre. At this point, the price per square foot has become totally meaningless and yet it is listed for sale at $28 per square foot. This scenario is an overly aggressive example of some of the potential development costs that have to be considered when establishing land value. However, it is no different than trying to evaluate a home by its price per square foot which can range in today’s market from $150 to over $300 per square foot. There, even I did it!
So the next time someone quotes you a price per square foot for a home or a piece of land ask them, “What else can you tell me about the property?”.