Price Per Square Foot: What’s The Average And How Do I Calculate It?
Calculating the average price per square foot of a home seems like it should be straightforward math. However, it’s actually more complex than that.
In fact, a lot of nuance goes into evaluating square-foot pricing. Square-foot pricing is another effective tool that prospective home buyers can use to assess a home’s value.
What’s The Average Price Per Square Foot?
The average price per square foot of a home is the cost or current market value of a home divided by the square footage of the home.
To calculate the average per-square-foot cost of homes in a given real estate market, you’d need to add together the cost per square foot of comparable sales – that is, homes that have recently sold in the area – and then divide the sum by the number of homes.
However, if you’re considering buying a home, you’ll need to consider other factors when determining a home’s price per square foot.
What Other Factors Affect The Price Per Square Foot?
Many factors are considered when evaluating a home’s price per square foot, including the home’s condition, age, improvements, lot size and number of rooms.
One of the biggest factors affecting price per square foot average is location. The impact of location can cause a home’s average price per square foot to vary significantly. In fact, a nationwide average price per square foot is meaningless because it’s impossible to compare home prices in locations like San Francisco or New York City to other prices nationwide.
Other variables that impact a home’s average price per square foot are the school district in which a home is located and its proximity to business districts or parks, along with intangibles such as the views and scenery on or near the property. These factors all affect a home’s market value which can impact the home’s square foot calculation, so it helps to get advice from an expert in the local housing market, such as your real estate agent or REALTOR®.
How Do I Calculate The Price Per Square Foot Of My Home?
As a homeowner, you can calculate your home’s price per square foot by taking the purchase price of the home and dividing it by the square footage of the home.
For example, if you buy a 1,000-square-foot home for $250,000, the price per square foot would be $250:
$250,000 ∕ 1,000 = $250
If you purchase a home with 1,500 square feet for the same price, the cost per square foot would be $166.67.
When Is Calculating Price Per Square Foot Useful?
While square-foot pricing is an effective tool for determining how much your house is worth, using it as an apples-to-apples comparison has its limitations.
The average price per square foot calculation is useful mainly to spot wildly overpriced or underpriced homes. Though this can be beneficial, it’s not always the best method for assessing a home’s value.
For example, this calculation doesn’t consider the condition of the home or the amenities it provides. In addition, it only considers the house and not the property on which the home is located.
Median Vs. Average Price Per Square Foot
Square footage isn’t always created equally, as smaller homes generally have a higher price per square foot, and some living spaces, like finished basements, aren’t included in the house’s overall square footage.
In this case, a more meaningful metric would be the median price per square foot. While the average is an arithmetic mean – the total square-foot cost of a given number of comps divided by the number of comps – the median is, literally, the middle value in a data set.
Imagine all the square-foot prices standing in a line, and you pick out the very middle one – that would be the median price per square foot. The median is a more accurate metric because it isn’t as easily affected by outlier data points – for example, several disproportionately low or high square-foot prices for a set of comps within the same housing market.
What About Price Per Square Foot In New-Home Construction?
The two main factors contractors look at when calculating square foot pricing in new construction are materials and labor, so their use of the term is a little different.
For example, unlike newer homes, older homes tend to have lower prices per square foot because older materials generally tend to be considered less valuable. Despite this, neighborhood desirability can dramatically affect the market value of older homes, and the average price per square foot reflects that.
The Bottom Line: Price Per Square Foot Is Just One Tool Among Many
The average price per square foot is a useful tool that can help you assess the value of your home.
You can calculate this value by taking the purchase price of the home and dividing it by the square footage of the home. But remember to be aware of the limitations that come with this comparison, and make sure to use other supplementary tools when assessing your home’s value.
If you’re getting ready to begin the home-buying process, it helps to know how much home you can afford. Start a mortgage application today to speak with a Home Loan Expert and see what you qualify for.