Explaining how price per sq ft doesn’t work
(with a Lamborghini)
By Ryan Lundquist on Feb 06, 2018 05:14 pm
If there’s one conversation to master in real estate, it’s explaining how price per sq ft works. Or rather how it doesn’t work. In the past I’ve used Starbucks cups and even toilet paper to explain things, but today let’s use price per pound. What do you think? Let me know.
Seller: I used price per sq ft to price my property.
Me: That’s great. Did you pick the right number?
Seller: What do you mean?
Me: Imagine your neighbor just bought a Toyota Camry for $24,000. If we do some quick math, she paid $7 per pound based on the weight of the car.
Me: Now imagine a different neighbor wants to buy a Lamborghini. It’s been his dream since middle school, but it’s way out of his budget. Well, not any longer though since he just learned the price per pound for a vehicle is $7. He can now afford the Lambo. Pretty cool, right?
Seller: It doesn’t work that way.
Me: Exactly. Why not?
Seller: You can’t use the price per pound from a Camry to price a Lambo. Those are two completely different cars.
Me: Well said. And in the same way we can’t borrow a price per sq ft from a dissimilar property down the street and arbitrarily use it to price your house. That’s a bit like using Camry stats to price a Lambo.