Property Valuations by Price per Square Foot ... from a Mortgage Originator's View


Property Valuations by Price per Square Foot ...
from a Mortgage Originator's View


Recently I read an article written by Appraiser Tom Horn (Birmingham, AL) entitled: "How do Appraisers Calculate Price per Square Foot?" ...  

Soon after reading this informative article, I received an Appraisal in my office on a (purchase) transaction I was originating.  

The article and the appraisal motivated me to write the following post.  It summarizes a few of the issues addressed in Tom's article and those I confront fairly often within appraisals I receive.   

Appraisals and the act of appraising are of great interest to me.  My interest doesn't spring solely from the fact that I'm a Mortgage Originator and appraisals are a vitally important portion of the lending process.  

Uniquely, I'm also a Mortgage Originator that served as a licensed IL Real Estate Appraiser for over 20+ years.  My post is shared from that viewpoint.

Residential real estate transactions include:

  • Someone hoping to sell a home
  • Someone looking for a home to buy   

The majority of real estate transactions are kickstarted by a  Listing Agent (no matter their locale or housing market) establishing a Fair Market Asking Price for a new Listing.  
While establishing that Asking Price, the agent must assess ... 

"What are homes selling for in the immediate area as related to their Living Area (a/k/a Square Footage of Living Area ABOVE GRADE)?

Real estate housing markets across our country obviously vary greatly, as do their architectural styles and home designs.  When calculating Square Footage (of Living Area), agents should follow the one standard/textbook method that all appraisers are required to use:  


Sales Price
Divided by:  Gross Living Area (Above Grade)
Equals:  Price per Square Foot

Sounds simple enough, right?  But how is Gross Living Area calculated?

To calculate a correct Gross Living Area, the following should and must be excluded:

  • Garages/Carports/Garage Apartments (accessed through unfinished areas of a home
  • Basement Area (ANY area that is BELOW Grade Level), including well-finished levels in Split-Level Designs and homes with Walk-Out Basements fitting the topography/slope of a back or side-yard
  • Enclosed Porches
  • 3-Season Rooms
  • Secondary (Detached) structures such as "Coach Houses", "She-Sheds", etc.

It should be noted:  While it's true that the above-mentioned amenities can and do affect Sales Prices higher, Appraisers cannot include any of these property features in the Gross Living Area Calculations and Comparison Grid when appraising a given property.

This fact must also be emphasized:  It's vitally important that Comparable Sales and Listings with like features and amenities be utilized in any report prepared.  Comparing homes of similar Living Area Size is key to any solid Appraisal being produced and successfully completing Mortgage Underwriting. 

Mixing in Comparables that appear reasonably similar in design, size, price, living area ... but deviating from accurately breaking down the Square Footage Living Area and the separate amenities ... leads to a flawed price indication.

Remember the old saying, "Compare apples to apples, etc."?  It applies perfectly when referring to Appraisals.

Using the Price per Square Foot method for market studies is fine, as long as the comparisons are reasonably similar ... and any and all variables are adjusted for separately.  And that is, of course, assuming that they have an impact on Market Value in your particular sub-market.

Think back to above when I said that I received an Appraisal that spurred me to write this post ...

In that referred-to Appraisal, the Subject Property was a unique "Raised Ranch-style" home.  It included the following indicated Value(s) per Square Foot on the six Comparables used by the Appraiser (featured from low value to high value per Square Foot):
  1. $135
  2. $139
  3. $188
  4. $198
  5. $235
  6. $239

The Subject Property had sold at:  $221/per Square Feet.  The Comparables that had sold at the higher end of valuation were most similar to the Subject in Living Area Size and Basement-Finished Rooms (perhaps the 2 most critical areas of comparison in this particular appraisal assignment).

In this particular Appraisal, I was greatly relieved to see that the Appraiser had compared "apples to apples".  Why?  It was a great example of an Appraisal that could have easily gone awry and caused an issue while in underwriting. 

Unfortunately, I've seen problems of this nature arise. In one of those instances, the Appraiser had incorrectly calculated the Square Foot of Gross Living Area at double the actual size, (by wrongly including the lower level walk-out finished basement area in the Living area). Think "trickle-down theory", as obviously, that incorrect calculation subsequently skewed the Value Estimate. 

Because so much rests upon the results of the Appraisal performed (for all parties involved in the transaction) the "correctness" of the Appraisal can't be overstated. A correctly calculated report is needed by the Seller, Buyer, and Lender alike ... so that a "fair shake" is the result.




* Hoping to Buy or Refinance a Home or Investment Property in New Lenox, Will County, or elsewhere in the Chicago - Chicagoland area, IL or WI? 

Contact me!

I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:



Gene Mundt
Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI Licensed #216987


American Portfolio Mortgage Corp.
NMLS #175656



Direct: 815.524.2280
Cell or Text: 708.921.6331
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