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Why cost per square foot is a poor representation of home value

Local custom home builder and real estate broker, Paul Corsi explains the best ways to determine value whether you're building, buying or selling

More often than not, I get asked what the average cost per square foot for a new build would be. I never answer that question because it’s a poor representation of the value of a single family home and here’s why. 

I can build 2 different 1400sf homes and the cost per square foot would be very different. There are too many variables that affect the final cost which could include roof pitch, span and depth of floor joists and beams, ceilling heights, stud spacing, and topography of the site, just to name a few. Furthermore, when you factor in finishings such as plumbing, flooring and  cabinetry, the final cost of a project can grow exponentially.

This spring, I represented buyer clients of mine on the purchase of a south end home that was clad with real stone exterior veneer -- this is easily three to four times more costly that a conventional clay brick veneer -- and at the time of construction, the cost per square foot could have been a deterrent for prospective buyers if the consideration for the price increase had not been properly communicated. 

So where does price per square foot apply then? 

Architects, general contractors and developers who are involved in large scale projects will typically refer to historical cost per square foot data to determine the feasibly of a project based on the hard costs as a starting point. This is where this type of cost analysis is most relevant. These projects include condominiums, commercial space, and large scale track home developments where the floor plans and finishings are very similar. The more repetitive the build, the more accurate the cost projection would be. In this case, cost per square foot can determine wether a project moves forward or not. 

What should I rely on to determine value? 

Most agents will rely on a Comparative Market Analysis (CMA). They will examine the prices at which similar or comparable properties in the same area recently sold. Agents make adjustments for the differences between the sold properties and the one that is about to be  purchased or listed to determine a fair offer or sale price.

Although price per square foot is a component of a CMA, the impact on the final price is minimal. 

So when it comes to determining the value of a single family home (existing or new), don’t focus on cost per square foot data. rRather, itemize the differences between a comparable recent sale and your subject property. 

Paul Corsi has over 20 years of custom home building experience, is a Registered Tarion Home Builder, Certified Engineering Technologist (C.E.T.) and is the Broker of Record with Corsi Realty in Sudbury. For more information visit, or email Paul directly at