When it comes to calculating the average price per square foot of a home, there are many factors you should be aware of. Even though this concept seems like it should be a straightforward mathematical computation, it’s actually more complex than that. In fact, there’s a lot of nuance in evaluating the importance of square-foot pricing. Nonetheless, square-foot pricing is another effective tool 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. According to recent data, the average price per square foot in the U.S. is $123, but this number varies widely.
Why Is There So Much Variation?
There are many reasons why a home’s average price per square foot can vary, but one of the biggest factors affecting price per square foot averages 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, its proximity to business districts or parks and intangibles like views and scenery. These factors all affect a home’s market value, which therefore impact the home’s square foot calculation.
How Do I Calculate My Home’s Price Per Square Foot?
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.
You could also perform the same calculation on other homes that have recently sold in the neighborhood, which could then be averaged to find the average price per square foot for the block or a specific area.
When Is Calculating Price Per Square Foot Useful?
While square-foot pricing is an effective tool, using it as an apples-to-apples comparison can sometimes cause 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.
Square footage isn’t always created equally, as smaller homes generally have a higher price per square foot, and some livable areas of the home, like finished basements, aren’t included in the house’s overall square footage. In this case, a more meaningful rough calculation would be between average price per square foot and median price per square foot.
What About Price Per Square Foot In New-Home Construction?
Now let’s talk about how contractors calculate price per square foot when it comes to the costs of new-home construction. The two main factors contractors look at when calculating square foot pricing 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 tend to generally 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.
Summary: Price Per Square Foot: 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. Learn more about your home’s value and explore other home buying topics in the Learning Center.