When comparing a small house with a large house of similar quality, which of the following is true?
Audio Lesson
Duration: 2:33
Question & Answer
Review the question and all answer choices
A small house costs more per square foot.
This is incorrect because smaller houses typically have higher cost per square foot, not lower. The misconception is that smaller homes should be cheaper per square foot, when in fact they have higher per-unit costs due to fixed expenses being distributed over less area.
A large house costs more per square foot.
Large homes sell better.
This is incorrect because home size doesn't inherently determine marketability. While large homes may appeal to some buyers, they may have fewer potential buyers due to higher price points, making this statement unreliable as a general principle.
Size doesn’t matter.
This is incorrect because size does matter in real estate valuation. Size is one of the primary factors affecting property value and cost per square foot calculations.
Why is this correct?
Large houses cost more per square foot because fixed costs like land, foundation, and utilities are spread over more square footage, resulting in a lower cost per square foot compared to smaller homes of similar quality.
Deep Analysis
AI-powered in-depth explanation of this concept
This question tests understanding of basic real estate valuation principles, specifically the relationship between property size and cost per square foot. In real estate practice, this concept matters because agents must accurately value properties and explain pricing discrepancies to clients. The core concept is that larger homes typically have lower cost per square foot than smaller homes of similar quality. This occurs because fixed costs (like land, foundation, and basic systems) are spread over more square footage in larger homes. When approaching this question, we need to distinguish between total cost and cost per square foot. While a large house costs more in total, the price per square foot is typically lower. This question challenges students because many intuitively think smaller homes should be cheaper per square foot without considering how fixed costs are distributed. This principle connects to broader real estate knowledge including appraisal methods, market analysis, and pricing strategies used in property valuation.
Knowledge Background
Essential context and foundational knowledge
The principle that larger homes have lower cost per square foot stems from economic principles of economies of scale. In construction, certain costs are relatively fixed regardless of home size - things like land acquisition, permits, foundation work, and utility connections. When these fixed costs are spread over more square footage in larger homes, the cost per square foot decreases. This is why a 3,000 sq ft home might cost $400/sq ft while a 1,500 sq ft similar quality home might cost $500/sq ft. Understanding this principle helps agents explain pricing variations and perform accurate comparative market analyses.
Think of buying pizza - a large pizza has a lower cost per slice than a small pizza, even though the total cost is higher. The fixed costs (oven, labor, ingredients) are spread across more slices in the large pizza.
When comparing properties, visualize the pizza analogy to remember that larger homes typically have lower cost per square foot
Remember the pizza analogy: larger homes typically have lower cost per square foot. Focus on the relationship between fixed costs and total square footage when answering size-related value questions.
Real World Application
How this concept applies in actual real estate practice
A buyer is considering two homes: a 1,200 sq ft cottage priced at $600,000 ($500/sq ft) and a 3,000 sq ft similar-quality home priced at $1,200,000 ($400/sq ft). The buyer questions why the larger home is 'cheaper' per square foot. As their agent, you explain that fixed costs like land, foundation, and utilities represent a higher percentage of the smaller home's total value, driving up the per-square-foot price. This understanding helps the buyer evaluate which property offers better value for their needs and budget.
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