In real estate, there are few calculations more imporantant than price per square foot. It’s a metric that is used by appraisers, sellers, buyers, and real estate agents. Although the math is about as basic as it gets, analyzing a home’s price per square foot is a lot more nuanced. In this article I’ll provide an easy-to-use real estate price per square foot calculator and will detail how to easily calculate this with any regular calculator. I will also share some information on how this metric is commonly used along with some tips for interpreting the results.
Price Per Square Foot Calculator
For those of you who may be math-averse, allow me to remove any mystery surrounding how you arrive at a price per square foot:
PRICE divided by SQUARE FEET = Price Per Square Foot
If you have a home listed at $1,000,000 and it is 2,000 square feet in size, its price per square foot would be $500 (that’s $1,000,000/2,000).
Why is Price Per Square Foot Important
Buyers, sellers, agents, appraisers, and others routinely use a home’s price per square foot to compare valuation. It’s a quick way to get a sense of how a home is priced. Sellers consider it when determining what price to list their home at, and buyers weigh it when considering what to offer. Although the calculation is very basic, the factors that influence the metric are highly complex.
Influences on a Home’s Price Per Square Foot
Aside from the obvious list or sales price and how many square feet a home has, there are countless variables that impact a home’s price per square foot:
- Location
- Condition
- Age
- Views
- Architecture/Design
- Single vs Multiple Stories
- Layout
- Uniqueness
- Solar
This list could go on and on. At some level, anything and everything that might influence what a willing buyer might pay for a property can influence the price per square foot. Another important influence on a home’s price per square foot is its relative size.
Relative Home Size Can Skew Price Per Square Foot
All other things being equal, smaller homes have higher prices per square foot than larger homes. In other words, if we took two homes each built in the same year, with the same style, the same quality, situated in the same location, we would expect the larger home to have a lower price per square foot than the smaller one. That may be obvious based on the math, but it’s easy to get fixated on the price per square foot without factoring in the vital influence of home size.
This skewing becomes readily apparent if you happen to be looking at a very small home listed in a neighborhood that typically has larger homes (or vice-versa). Let’s take an example of a neighborhood whose homes are usually 2,000-3,000 square feet in size. For simplicity, let’s say homes there are typically priced around $1,000,000. This means the price per square foot in that area is usually in the $333-$500 range. If there happens to be a home that’s only 700 square feet in size and is listed at $700,000, its price per square foot would be $1,000. That is double to triple most homes there.
Some buyers looking solely at the “high” price per square foot might assume that the small home is priced “too high” or is “expensive” relative to what is typical in the neighborhood. While that may be true, in this example the high price per square foot can mostly be attributed to being a small home.
Variations Between Different Neighborhood Types
The utility and reliability of this metric to inform value varies depending on the type of neighborhood. Some neighborhoods are highly uniform. The homes were all built at the same time, by the same developer and there may be dozens or hundreds of homes with the same floorplan. In these highly uniform developments, price per square foot tends to be much more uniform. In a neighborhood like this, most of the home sales fall in a relatively narrow range. You might have an entire neighborhood where 99% of the sales are within $100/sq ft of each other.
Other neighborhoods can have tremendous variations among the homes. The properties might be brand new or 100 years old, custom beachfront mansions or modest suburban homes, masterfully built architecture or bare-bones build quality, small cottages or huge estates. In a neighborhood like this, price per square foot can vary wildly. Looking at an “average” price per square foot in a neighborhood like this is not very useful. Mediocre homes might sell at $800/sq ft, and amazing mansions might sell at $600/sq ft. There might be homes that sell for $400/sq ft and homes that sell for $2,000/sq ft.
How Price Per Square Foot is Best Used
Home appraisers and real estate agents commonly use price per square foot when conducting a comparative market analysis. Ideally, the agent or appraiser has collected a handful of recent sales that are the most similar to the subject property. These “comps,” or comparable sales, should be similar in size, location, quality, etc.
In short, this metric is best used when comparing similar homes. If the most recent similar sales in a given area have been in the $500-$700/sq ft range, and a home you’re considering is listed at $850/sq ft, then there’s a good possibility that the home is overpriced.
If you are a buyer evaluating home pricing or a seller contemplating what price to list your home for, hopefully, you are now better equipped to analyze pricing per square foot and valuations in general.
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