Wednesday, March 18, 2015

The Price per Sq/Ft Sham

I have been in real estate for over a decade. For most of that decade I have had real estate agents and appraisers force feed me the "Price per Foot Kool-aid". To be honest all the while I have been skeptical.

For the past 3 1/2 years I have been married to a builder. Inevitably the first question he is always asked is "What is your average price per foot?". He hates that question almost as much as I do. 

Let's start with the basics. When building a home the most important thing is materials, design and craftsmanship. Think for a moment of the old adage "You get what you pay for". 

Take a look at these two examples:

Let's first take a look at the Kia Optima 
  • pricing starting at $21,690 
  • Width: 6'1"
  • Height 4'9"
  • Front Leg Room 45.5"
  • Interior Volume 117.6 cu/ft
  • Curb Weight 3237 lbs
  • Cargo Capacity 15.4 cu/ft

Now we will look at the Audi A6

  • pricing starting at $46,292
  • Width: 6'1.8"
  • Height 4'9.8"
  • Front Leg Room 41.3"
  • Interior Volume 112.1 cu/ft
  • Curb Weight 3803 lbs
  • Cargo Capacity 14.1 cu/ft 

If we use the real estate industry way of determining value it would look something like this:

Kia Optima
Based on Curb Weight, $6.70 per pound
Based on Interior Volume, $184.45 per cu/ft

Audi A6
Based on Curb Weight, $12.17 per pound
Based on Interior Volume, $412.95 per cu/ft

Yet every day across the country people are buying the Audi A6. The prices are not discounted. People don't walk into the Audi dealer expecting to get Kia pricing. They don't ask the Audi dealer why their pricing isn't comparable to Kia pricing. It's apples and oranges. People pay more money for the Audi because the materials are better, the craftsmanship is better, their quality, customer service and reputation are worth paying more for. 

Both cars have similar features, similar engines and are of similar size. Banks don't question the cost of the Audi when giving loans for one. 

Much like these two cars when you are looking at homes the materials, craftsmanship and quality of the home are worth paying more for.

We currently have a new tiny house listed in Fruita, CO. It is 836 sq/ft priced at $275,000 or $329/ft as I am reminded on a daily basis by my colleagues. 

The tiny house movement is a big deal across the country for those people who want to reduce their environmental impact and footprint, enjoy living their lives in their off time rather than being slaves to their house, they still want to entertain so that space is quite important. 

The house we have listed is much like the Audi. Aesthetically pleasing, quality built, top end finishes throughout and yet people continue to compare it to the Kias in the neighborhood. Cheaply built, won't hold up over time, nobody to stand behind it when things go wrong. 

Quite honestly, this house is an Audi. If you as a buyer are happy with a Kia then buy a Kia. But don't come to the Audi dealer expecting Kia pricing. 

Your Audi will have your friends talking, they will gawk over it, it will be beautiful. They will want one.