If you've been using price per square foot to compare homes of different sizes, the math isn't working the way you think.

I've been getting a lot of questions lately from buyers and sellers who want to know why they can't just use price per square foot to determine a home's value. It seems like it should be simple. If a home down the street sold for a certain price per square foot, yours should be worth about the same, right?

Not exactly. And when you're comparing homes of different sizes, that number can actually lead you in the wrong direction.

The smaller home will almost always have a higher price per square foot. Here's what I mean. Let's say you're looking at two homes in the same Orlando community. One is 3,000 square feet, and the other is 2,200 square feet. A lot of people assume the price per square foot should be roughly the same since they're in the same neighborhood.

But the 2,200 square foot home is almost always going to come in higher on a per-square-foot basis. And there's a real reason for that.

It comes down to the law of diminishing returns. Think about what goes into building both of those homes. The lot price is going to be about the same. The kitchen costs roughly the same. The bathrooms, the plumbing, the air conditioning systems, those base-level components are going in both homes regardless of size. You're paying for all of that, whether the home is 2,200 square feet or 3,000.

Where it gets interesting is when you start adding square footage beyond that base. Adding a second story or extending the footprint just doesn't cost as much per square foot as the core of the home did.

“A smaller home isn’t worth more per square foot. The math just works differently.”

You've already covered the expensive essentials. The additional space is relatively cheaper to build, which means the cost per square foot goes down as the home gets bigger.

So when you divide the total price of that smaller home by fewer square feet, you're spreading those same base costs over a smaller number. The price per square foot looks higher, but it's not because the home is worth more per square foot. It's because the math is working differently.

Appraisers know this, and they won't make that comparison. This is worth knowing if you're trying to figure out what your home is worth or what you should offer on a home you're thinking about buying. A typical appraiser will not compare a 3,000 square foot home to a 2,200 square foot home.

They're looking for apples to apples as much as possible. And when homes are significantly different in size, the price per square foot comparison breaks down.

There's a lot more that goes into adjusting home values beyond just size. Extra bathrooms, improvements, features, and lot differences. But understanding why price per square foot can be misleading when you're comparing homes of different sizes is a good place to start.

If you ever have questions about the value of your property or something you're thinking about purchasing in Orlando, reach out anytime. Give me a call at 407-499-8993 or email me at chris@mypinnaclehomes.com. You can also visit mypinnaclehomes.com for more information. Happy to walk you through it.