How To Calculate A Home’s Price Per Square Foot
Miranda Crace4-minute read
September 29, 2022
Price per unit is a concept many of us first learned about in middle school math class: If you can buy a six-pack of toilet paper for $5, or an 18-pack for $14, which one is the better deal?
Of course, comparing homes is a little different than comparing multipacks of consumer goods. Understanding a home’s price per square foot – and what you can learn from that number – is much more complex.
Let’s take a look at what price per square foot is and how to calculate it.
What Is Price Per Square Foot?
Price per square foot is a metric used in the real estate market to evaluate a home’s value. There are a lot of factors that go into determining the price per square foot of a given property: location, age, condition, number of rooms, lot size, upgrades and renovations and more.
A high price per square foot doesn’t necessarily mean that the home is overpriced, while a low price per square foot doesn’t always mean the home is a steal.
How Big Is A Square Foot?
“Square” measurements are equal to the length times the width of a space.
One foot is equal to 12 inches. So, if you have a space that is 12 inches in length and 12 inches in width, that equals one square foot, or 144 square inches.
How To Calculate Price Per Square Foot
A home’s price per square foot is equal to the list price divided by its total square footage. For example, if a 1,000-square-foot home is listed for $200,000, the price per square foot is $200:
200,000 ÷ 1,000 = 200
Many online listing sites automatically include the price per square foot in their listings, so you may not even have to worry about calculating this number yourself.
Is Price Per Square Foot Important?
Price per square foot is often included along with other basic information on homes for sale, and can vary even within the same city or neighborhood. But what can it tell buyers and sellers about a home’s price and value?
Though you might be tempted to draw certain conclusions from a given home’s price per square foot, the truth is that this number doesn’t give us a whole lot of useful information on its own.
Home values tend to be similar among comparable homes within the same neighborhood. Comparing the neighborhood’s average price per square foot to the home you want to buy can help give you an idea of how your prospective home measures up to similar homes in the area. But even then, it should be viewed as a starting point for further investigation.
For example, if you’re considering buying a home that has a higher price per square foot than its very similar next-door neighbor, you might want to ask your real estate agent why that is. It could be that the home you’re looking at has upgrades the other home doesn’t, or other advantageous features, such as a larger backyard.
While the price per square foot doesn’t often give the full picture of what a home has to offer, this metric does provide a foundation for the amount of space you’re getting compared to the home price. The more you know and understand about the property – including the price per square foot – the more confident you’ll be when making an offer on the house.
If you’ve considered the price per square foot (plus other factors of the home) and you’re ready to buy, a Verified Approval Letter (VAL) from Rocket Mortgage® can help strengthen your home offer. A VAL shows that your income, assets and credit history have been thoroughly vetted, which shows sellers that you’re fully prepared to purchase a home.
Price Per Square Foot Example
Let’s take a look at an example of how price per square foot can vary.
Alex and Taylor are next-door neighbors, and they’re both selling their homes. Alex is selling their 1,500-square-foot home for $280,000, while Taylor is selling their 2,000-square-foot home for $300,000.
Alex’s price per square foot is $187. Taylor’s price per square foot is $150. Even though Taylor’s home is more expensive overall, isn’t their home the better deal because you’re getting more space for less money? And does this mean that Alex’s home is overpriced?
Consider this: Alex, knowing they’d be selling soon, made some updates to their home to boost its value. Taylor, on the other hand, didn’t make any improvements to their home, so the interior shows a little wear and tear and several of the home’s main systems, such as the HVAC, will likely need to be replaced in a few years. In this case, Alex’s home might be the more attractive option for home buyers.
Additionally, even though larger homes typically cost more overall than smaller ones in the same area, larger homes often have a lower price per square foot than smaller homes. This could account for some of the difference between Taylor’s and Alex’s prices per square foot. Or, maybe Alex’s home, in spite of being smaller, has more bedrooms than Taylor’s home, making it more attractive to buyers.
It’s difficult to tell from price per square foot alone whether a home is fairly priced. However, that doesn’t mean that knowing a home’s price per square foot is completely useless; it’s just one of many different data points you’ll use to help you evaluate whether a home makes sense for your budget and needs.
Median Price Per Square Foot
The current median price per square foot in the U.S. is around $222, according to 2022 data from the Federal Reserve Bank of St. Louis. Using the median price per square foot to help determine home values is usually a better metric than the average price per square foot. The average can be more easily skewed by outlying data points, like unusually high or low prices per square foot from a set of comparable properties.
Depending on where you’re looking to buy a home, the prices per square foot of the homes you look at might be significantly higher or lower than this number.
In expensive cities, for example, where living space is in high demand, you might see a much higher price per square foot. In New York City, for example, it’s not uncommon to see prices per square foot above $1,000.
The Bottom Line: Price Per Square Foot Can Be A Useful Starting Point For Comparing Home Values
On its own, price per square foot gives you a fairly limited understanding of a given home’s value. However, it can help give you an idea of the questions you should be asking about a home you’re considering purchasing.
Work closely with your real estate agent to get the full picture of what your prospective home has to offer, and whether they see any red flags concerning the quality or condition of the home.
Getting ready to start the home buying process? Start the mortgage approval process to see what you qualify for today.
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