Imagine if the grocery store offered two bags of groceries at $30 each. Which one would you choose? Chances are you'd want to know what was inside each before making a decision.
Buying a home strictly using price per square foot is similar to buying a bag of groceries for a fixed price without seeing the contents.
In the Lower 48, some markets offer many homes to draw from with similar components, so in those locations the square footage calculation can be somewhat of an apples to apples comparison. Unfortunately in Anchorage, square footage is one of the most controversial comparisons, because of the many variables that can skew the numbers.
Variable No. 1: Different locations
The most important of the variables is location. The quality of the subdivision and the home's proximity to desirable conveniences such as parks, lakes, views or bluffs can dramatically increase the price. Two identical homes, one on a lake and the other across the street, will sell for different prices because of the location, and Anchorage has some really outstanding locations.
Variable No. 2: Different levels
The majority of construction expense occurs with the main level, then the upper level, followed by the lower level. An overall price per square foot does not take this shift into account. This is why even homes with similar size will vary in price. For instance, a ranch-style home will cost more per square foot than a two-story or a split-entry home.
Variable No. 3: Different architectural styles
A home with vaulted or soaring cathedral ceilings costs more than an older traditional home with lower, flat ceilings because of the unique rooflines and structurally engineered open spaces.
Garage location and size can also affect value. A three-car garage is more desirable, but its value decreases for a family with small children if they have to bring groceries up a level.
Variable No. 4: Different quality
Builders' craftsmanship and reputations can vary significantly. A brand-new home may look good, but the quality of craftsmanship becomes evident as the property ages. A builder's reputation can also be affected by how warranty work is handled. As in any industry, a few unhappy, vocal customers can create a negative perception that affects resale ability.
Tastes also change, but a buyer still looks for quality materials when comparing one home to another. An obvious comparison -- laminate versus granite countertops -- can create a difference in value.
Variable No. 5: Different care, or abuse, by prior owners
Some properties are in great condition but have not been cosmetically updated. Others may only be a few years old but were heavily used.
Older homes may also have taken advantage of the Alaska Housing Energy rebate program funds, with owners completing other much-needed updating. Footage calculations don't accurately reflect these improvements.
Variable No. 6: Market conditions
Current low interest rates make homeownership still affordable. Every 1 percent increase in interest rates reduces the loan amount 10 percent if you want to keep the payment the same.
The Anchorage bowl has a shortage of buildable land for affordable homes under $350,000. In 2014, 85 percent of reported MLS new construction sales were more than $350,000.
Prices for new construction remain high because material costs for builders continue to increase.
While concerns exist that current low oil prices will soften the real estate market, as happened in the late 1990s, our crystal ball is more optimistic. One difference from the late 1990s is the still historically low supply of properties for sale. According to the Alaska Multiple Listing Service, 465 homes are currently for sale in the Municipality of Anchorage compared to 1,090 homes in December 1998.
So look inside the "bag" and judge a home by its variable components to make more sense of the Anchorage real estate market.