The size of a property relative to the average-sized property in its neighborhood may affect its sale price, according to an article published by
The Appraisal Institute. “The Impact of Relative Size on Home Values,” by Paul Asabere, Ph.D., and Forrest Huffman, Ph.D., examined the impact relative size has on the pricing of houses. Relative size impact refers to the effect on home values of house size relative to the average size of properties in the same neighborhood. Unlike absolute size, which is a property characteristic, relative size is a type of neighborhood effect.
In the study, the authors expand on previous research by developing new measures for the effect of relative house size and the pricing effects of relative size. The research uses standard regression analysis and a database of 5,996 home sales in 412 subdivisions in the San Antonio area over a one-year period from April 2001 through March 2002.
“The analysis of relative size generally revolves around a basic question: Is there a pricing effect associated with being a larger or a smaller house versus the average-sized house in the same neighborhood?” the authors questioned. “There are in fact a number of buyer motivations that could result in sale price differences associated with relative size. Turnbull, Dombrow and Sirmans maintain that three different buyer motivation models regarding relative size could affect sale prices.”
The study shows that larger houses sell at discounts while smaller houses carry premiums relative to the average house size within the same neighborhood. Houses that were larger relative to the average-sized homes in the neighborhood sold at an 11 percent discount while the homes that were smaller relative to the average home sold at a 4.7 percent premium.
However, the authors emphasized that there has been very little analysis of the potential effects of relative size. The appraisal profession has not developed any specific definitional or procedural guidelines for the concept. The investigation into the potential effect of relative size begins with a discussion of the underlying buyer motivations that might drive these effects.
For the full article, read
The Impact of Relative Size on Home Values.