An appraisal is just one man’s opinion. This opinion establishes the final value of the home. This opinion is not established until one to two weeks before closing. One of the most nerve racking aspect of selling a home is waiting for the home to appraise.

What if you knew with 95% certainty a solid value of your home BEFORE you listed the home? Realtors provide sellers with a Comparative Market Analysis (CMA) to establish home values before listing. Most Realtors establish value by average price per square foot; whereas, all appraisers adjust each comparable. Establishing value by averaging the price per square foot is detrimental to those homes that are the smallest and largest in the neighborhood. A small house can be under priced. A big house is over priced.

Smaller homes get more per square foot than a larger home. The reason is that smaller homes cost more per square foot to build than a larger home. This difference in price per square feet carries forth for years. This means, in the same neighborhood a small home can get $160 per square foot; whereas, the larger home may only get $120 per square foot.

Most buyers and sellers depend on the price per square foot field on MLS to compare one home to the next. If price per square foot is used as a comparison tool then differences between the neighborhoods and the homes aren’t being considered. It is important for buyers to know that the same house in two different neighborhoods can vary in price. Similarly, a home with more acreage, outbuildings, pools will be more expensive (cost more per square foot) then a home without these extras. Price per square foot as a comparison tool between neighborhoods and homes is not the best tool to use.

If you can’t use average price per square foot to establish a value on your home, then what do you do? YOU ADJUST EACH COMPARABLE so it is equal to your home. Assume your home is 3,000 square feet on an acre of land with a pool and a three car garage. The best comparables would be homes close to your 3,000 square feet on an acre of land with a pool and a three car garage. Rarely is that comparable out there.

The best way to price your home is to adjust the comparable(s) to match your home. If the comparable doesn’t have a pool and only has a two car garage then value has to be given to the comparable to equal to your home. Assume the comparable sold for $400,000. Assume at this time the land and square feet are the same. An adjustment to the comparable would be to add $30k (+/-) for a pool and $5k (+/-) for the third car garage. The comparable adjusted puts a value of your house at $435,000.00.

Let’s now assume that the comparable has 200 less square feet than your house. An appraiser will adjust the square feet difference by just $35 to $55 per square foot. This range is used for most homes on the north side of San Antonio. In our imaginary 3,000 square foot house, the appraiser will multiple the 200 square feet difference by about $45 per square foot to get a square foot adjustment of $9,000.00. The adjustment would be added to the $435,000 adjust price that we already had. This puts a value of your house at $444,000.00.

This last paragraph is very important in valuing a home. If buyers/sellers rely on average price per square foot in the neighborhood then the price adjustment in their mind for the 200 square feet can easily be $30,000 ($150 x 200) versus the $9,000 that it is. The point being that the adjustment for the difference in square feet is less than assumed by the public.

Adjusting comparables versus relying on price per square feet benefits all sellers but it greatly benefits those sellers with the smallest homes in the neighborhood. An good example is a house in my neighborhood, Scenic Oaks. My neighbor had one of the smallest homes in the neighborhood. The only comparables that had sold in the past six months were much larger homes. The relocation listing agent suggested a list price based on price per square feet. The homeowner used my adjusted comps to set the list price. The buyers agents were also using price per square feet to send in offers. The offers were coming in at $230,000 when the adjusted comparable price was closer to $270,000. The seller convinced the relocation company to allow me to sell his house. Since I was able to justify my list price to the buyers, we got the home under contract in five days for close to the list price.

Knowing that price per square feet is not a good indicator of value also benefits buyers. Buyers tend to ignore nicely priced smaller homes and can also pay more for larger homes. It is common for my clients to reap the benefits of a small home priced with average price per square foot. My clients are also aware that a good price per square foot on a very large home in the neighborhood doesn’t mean it’s a bargain. Adjusting each comparable gives buyers confidence they aren’t overpaying for a home.

Adjusting each comparable gives sellers a solid view of their listing price. This gives us the ability to adjust the price higher for updating, location and inventory.

Valuing a home is best done by adjusting each comparable. Establishing a home value by average price per square foot doesn’t give a buyer or seller the complete picture of value.