I’ve been using the phrase, “cost of admission to the neighborhood” for the last couple of weeks as we have two listings that have the smallest square footage for their respective areas. Really what were talking about is that the land value has a higher ratio when comparing a small house to a big house on a similar sized lot.
If the land value under the house is $100,000 and the house is 1000 square feet, there is $100/SQFT attributed to the average cost per SQFT of the house. If the neighbor’s house is on the same lot but 2000 SQFT, the land only contributes $50/SQFT to the cost per square foot of the house.
The result is that smaller houses look bad when looking at the “comps,” the other houses in the neighborhood that have recently sold or are on the market. You’re saying “well they’re not comparable then are they?” True but you’ve got to have something to compare to and using a 1000 SQFT home in NE is not going to comp a 1000 SQFT in Lake Oswego even if they are statistically built identically.
A house looks bad compared to the cost per square foot of other houses in the neighborhood may still be good value. You can’t just look at the numbers.