Real Estate Comments

One of the simplest, most used and least meaningful comparisons between different properties is the price per square foot.  Simply divide the price by the number of square feet for each property to arrive at the price per square foot, and compare the numbers.  It’s simple enough to do, which is probably why it’s done so commonly.  But what does it actually mean?

Most of the primary factors that determine a property’s value have nothing to do with square feet.  The property’s location, view, quality of construction, age, stylishness and finish materials, scarcity, availability of utilities, landscaping and many other vital factors have nothing to do with square feet.  The lot upon which a house is constructed has nothing to do with the square feet of the house.

Frequently, buyers who have been comparing properties online will call their agent with a list of properties that look like the best deals based on their prices per square foot.  After visiting the properties they are frustrated because all of the good deals they thought they had found, have significant drawbacks.  They’re located right under high voltage power lines, or they’re backed up right against a noisy freeway, or they’re in serious disrepair, or any combination of these and/or numerous other factors.

Sometimes sellers who want to sell their properties without using a real estate agent will ask an agent what the going price per square foot is in their area, or for their type of property, hoping for a simple way to set the right price without having to understand how the right price is really established, or having someone do the work of figuring it out with an expectation of being compensated.  If it were that simple, the right price would be obvious from the recent sales of other properties in the area, and the seller wouldn’t even need to ask.

Real estate values are related to features, characteristics, amenities, conditions, uses and the like.  These factors are not all black and white, many of them are highly subjective and require keen intuition to assess and translate to market value.  Getting it right is science and art, and getting it wrong is costly.  Square feet are the expression of only one characteristic, size, among many that are of equal or greater importance.  Accurate pricing requires skilled consideration of all of the important factors.

The price of real estate is important, but the cost of buying real estate is more important because it encompasses not only the price, but also the cost of borrowing and other factors.  Moreover, it varies from buyer to buyer, which is one of the many reasons that the real estate market may be good for one person, and bad for another with similar property needs and wants, all at the same time.

A buyer seeking to finance a high percentage of the purchase price over a long period of time may benefit from buying when interest rates are lower than normal, even if prices might drop a little after they buy.  If in fact prices do drop a little, and interest rates rise a lot, this buyer may lose the best buying opportunity by waiting for prices to bottom.  At the same time, a buyer seeking to pay cash or finance a smaller percentage over a shorter time may be better served by waiting for a lower price to come along.

Individual circumstances and goals always play an important role in determining when a buyer or seller should be in the real estate market, and when they shouldn’t.  Prices alone don’t determine that.  Mortgage interest rates alone don’t determine that either.  So then rationally weighing these factors, along with the many other factors is necessary to determine how the current market is for you.  The mainstream news media headlines aren’t helpful because they are aimed at your emotions, not your calculator.  Sometimes the underlying information in the articles has value if you discriminate among the various pieces that do and do not apply to your circumstances.  If you have a trusted adviser and/or agent who honestly works on your behalf based on only your circumstances and goals, they can be an excellent source of the information you need to make your best decision.  Calling on that trusted adviser and/or agent to show you the math, or at least check your math, is a good idea when weighing real estate prices against mortgage interest rates.

Key points to remember are that the relationship between prices and rates is a mathematical, not an emotional relationship.  In order to avoid making a financial mistake, be sure you do - or ask someone you trust to do - the math.  Also, the math is different for you than it is for someone else, because their finances are different than yours.  Any characterization of “the market” or “the property” that doesn’t factor in your circumstances and goals, isn’t a necessarily applicable to you.

How your property is exposed to the market when you sell has a strong influence on the price you can expect to achieve on the sale.  Both quantity and quality of market exposure matter.

Outdoor appearance and use of your property is an important aspect of its value, and of course it is seasonal.  Your collection of high quality photographs of your property taken throughout the 9-12 months prior to putting it on the market for sale may give you a high quality visual edge over competing properties with no out-of-season photos.

Put your own photographic skills to use, or if you have a good relationship established with a real estate professional you trust, ask them to arrange the seasonal photography.  Keep in mind that the goal is to have photos of appropriate quality for use in the marketing media and materials that will be used when you decide to sell.

Maybe you don’t have any plans to sell any time soon, but what will it hurt to have some great property photos anyway?  If your plans change unexpectedly, you’ll be covered, and if you keep your property for a while you’ll have a great historical record and something to show off.