What is the Square Footage Adjustment Factor?

What is the Square Footage Adjustment Factor? Introducing the Square Footage Adjustment Factor

You’ve likely come across the term square footage when dealing with real estate. It’s a standard measure of a property’s size. However, when assessing the value of a property, size alone doesn’t paint the full picture. Here, we introduce a critical tool in the appraiser’s toolkit – the square footage adjustment factor. This factor adjusts the property’s value based on size, ensuring a fair comparison with other similar properties.

Adjusting for Size

The square footage adjustment factor plays a key role in property appraisals. It ensures appraisers take into account the size differences between properties. If you compare a large house to smaller homes in the same area, it wouldn’t be a fair comparison. The adjustment factor levels the playing field, adjusting the larger house’s value to provide an accurate assessment. [ 1 ]

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Crunching the Numbers: How to Calculate the Square Footage Adjustment Factor

The calculation might sound tricky, but it’s straightforward. You first determine the per-square-foot value of a comparable property. Then, find the size difference between your property and the comparable one. You multiply this difference by the per-square-foot value of the comparable property. The result is the adjustment factor. This step-by-step approach makes the calculation manageable.

It’s All About Context: When to Use It

Appraisers don’t use the square footage adjustment factor all the time. They use it when the property size significantly differs from comparable properties. If the property sizes are similar, the adjustment factor becomes redundant. Furthermore, if plenty of comparable properties are available, they offer a more accurate value assessment, eliminating the need for adjustments.

Keeping It Real: The Limitations

While it is a useful tool, it does come with limitations. It focuses solely on size, ignoring other property value influencers such as location, layout, and overall condition. So, it’s not a standalone tool but forms a part of a comprehensive property appraisal.

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A Practical Example

Imagine appraising a 2,000-square-foot house in a neighborhood where comparable houses measure about 1,800 square feet. If the average sales price per square foot in the neighborhood is $200, you’d calculate the adjustment factor as follows: 200 (price per square foot) x 200 (difference in square footage) = $40,000. Consequently, you’d adjust the 2,000-square-foot house value upward by $40,000, ensuring a fair comparison with other homes in the neighborhood. This example shows how the square footage adjustment factor plays a critical role in obtaining an accurate property appraisal.