Assessing Worth of Price Data

Price per square foot is almost universally used among real estate agents in evaluating properties. But unless completely understood, it is an inappropriate barometer that often leads to erroneous conclusions by buyers and sellers.

The most significant failure of this measure is that it does not take into account lot size and value. The reason homes increase in value is because the land appreciates at a greater rate than the depreciation of the home itself.

The forces of supply and demand are what influence the marketplace, but ultimately the home is not as significant as its location. The adage is true: location, location, location. And that translates into lot value, lot value, lot value.

A better way to evaluate a home is to separately determine the value of the land and the value of the house and add the two together.

By so doing, you will avoid cases of comparable value for homes of equal size but substantially different lot sizes in the same area or homes of equal size but substantially different age and condition.

The reason that lot values are not commonly used is that most agents have difficulty in determining lot value and rely on figures easily arrived at by dividing sales price by home size.

GERALD NELSON
Coldwell Banker Jon Douglas
Los Angeles