Pointing You in the Right Direction: Using PSF

Selling

 

PSF.  Stands for “per square foot” and is probably one of the most recognizable acronyms in real estate.  Homeowners often consider price PSF averages in their neighborhood and develop expectations on how their home should be priced.  Brokers have used PSF sale prices for bragging rights to the real estate industry about getting the highest price in a particular neighborhood.  But is the PSF analysis on a home really meaningful? 

The answer is yes… and no.  About as clear as Italian traffic signs.  Mamma Mia!

But let’s try break it down so it’s easy to understand:

When PSF is useful

Price per square foot has value if you are comparing homes that are similar in size, similar in their layout and located within a very specific area.  If you’re putting some weight on a PSF analysis, be careful.  The similarities between the homes being compared must be very strong, like total square footage, bedroom and bath count, finishes, upgrades, lot size, etc.  You should be comparing a Granny Smith to a Macintosh, not a Chiquita Banana.

If you are using price PSF in the context of understanding the neighborhood range, it can also be a useful tool.  The price range can vary depending on how specific the area boundaries are, so it’s good to focus on a small geographic area.  A narrow range can be a helpful factor for your pricing strategy – if you are within the range you have some assurance you aren’t priced too low or too high.

When PSF is useless

In most situations, the PSF method really should not be used as a sole pricing strategy.  Factors like the condition of the property or the characteristics of the street are not taken into account.  Smaller homes tend to have a higher price PSF than larger homes, and even when comparing two similarly sized homes, a PSF price would not take into account the desirability of a 4-bedroom versus a 3-bedroom.

Keep PSF as one of your many decision-making tools

The bottom line is that when pricing a home for sale, nothing compares to knowing the current market conditions, the neighborhood characteristics and the nuances of the property for sale.  Once an educated decision has been made on price, the PSF range is helpful to confirm it falls within the area range.

Doesn’t that help to clear things up?  Prego.  :)