When is the square footage method of valuation ok for real estate evaluation?

Question

Is it only when you cannot use the assessment method or no sales or purchases have occurred allowing for the comparison method. Is it the same case for fire insurance as other situations.

Answer 1

When you call it the "square footage method" I think you mean what I call the "Cost/depreciation" method.  That is when you figure out how much it would cost to build the house new today- there are computer programs designed to do this.  Then you have to realize that the house is not new.  The new houses would have features that this house doesn't have and no baby has thrown up on the carpet.  No dog has scratched the door.  The whole design would likely be different if it was designed today.  Square footage is used in this method along with a lot of other data.

This is normally done on every appraisal along with the rent value approach, but then the appraiser makes a statement that the market approach is better for this appraisal (and says why that is true).

Square footage would also be used in the market approach to help pick comparable home sales.

A home is never really strictly valued based on size.  You might buy meat by the pound but you really don't buy a home by the square footage.

Answer 2

You should know the average cost per square foot in the area you are buying in for every transaction.  Use this as well as the comps and property assessment.  The more methods you use to justify your price, the harder it is for a seller to negotiate you into a price that doesn't work as well for you.  Numbers are your friend, get as many of them on your side as you can!  They tell the TRUTH- only using numbers can you get an HONEST deal.  A buyer cannot ask you to pay more than the NUMBERS show the property is worth.

(well, they CAN ask you, but you know not to get emotionally attached!  If the numbers don't work- move on!)

Answer 3

That is used in the cost-approach method and is RARELY used except for insurance purposes or unique properties, but mostly with commercial buildings such as schools, hospitals and churches.

No bank will accept a cost-approach method for lending purposes on a residential mortgage...no exceptions.