When evaluating the value of a house, several factors are important. There’s curb appeal, and of course, location. The price per square foot is another essential metric. But if you don’t understand where this metric comes from, you’re going to be at a disadvantage when you’re negotiating.
The average price per square foot is $125 in the US. Real estate sites will often calculate the price per square foot for you, but what if they don't? It's important to know how to calculate the price per square foot to know if you're getting a good value.
We’re about to take a deep dive into what price per square foot means, how it’s calculated, and how to determine where you’re getting the best value. We’ll also talk about how to compare comparable listings, and how to find sales information for a particular area. Understanding all of this is vital and will play a role when you figure out how much to offer on a house.
Calculating Price Per Square Foot Examples
Finding the Average Cost Per Square Foot in an Area
Real Estate Comps and Price Per Square Foot
How To Find the Necessary Data
Price Per Square Foot Calculation FAQ
Here are a few examples of how to calculate the price per square foot.
- A 2,000-square foot home is listed for $400,000. In this case, $400,000 divided by 2,000 is $200 per square foot.
- A 1,500-square foot home in the same neighborhood is also listed for $400,000. The price per square foot is $267 per square foot, more than the larger home.
- A 2,500-square foot house nearby is listed at $450,000. In this case, the price per square foot is $180, less than either of the other homes.
It’s important to remember that price per square foot is only one metric. It doesn’t tell you anything about the home’s layout, or other features such as how many bathrooms there are or whether or not the basement is finished. For example, basements generally aren’t included in square footage calculations. If the 1,500-square foot home has a 500-square foot finished basement and the 2,500-square foot home has a simple concrete cellar, that will affect the overall value, but not the price per square foot.
That said, the price per square foot can give you leverage when negotiating with a seller. You can show them listings for homes in the same neighborhood with a lower price and use that as a tool to talk them down. At worst, they’ll refuse to meet your price. At best, it can help you get a much better deal.
Suppose you’re dead set on a particular neighborhood or school district. In that case, it can be a good idea to figure out the average price per square foot for that area. To do that, you’ll first need to choose a sample set of houses. Then you calculate the price per square foot for each of them, add them together, and divide the total by the number of houses.
For example, in the last section, our house prices were $200, $267, and $180 per square foot. 200 + 267 + 180 is 647. Divide that by three, and you get about $216 per square foot. That’s your average for the neighborhood.
How does this help? Simply put, it gives you a rough measurement of whether or not you’re getting a good value. If you see a home in that neighborhood that only costs $140 per square foot, you might want to look twice and see if there’s anything wrong with it. Conversely, if a home costs $300 per square foot, it’s probably overpriced.
To make the price per square footwork for you, you need to understand comps, or “comparable listings”. These are homes that can be usefully compared with the listing you’re looking at.
To find useful comps, you’ll want to find homes that sold within the last three to six months. They should also be nearby, definitely in the same school district, and ideally in the same neighborhood. Moreover, they should be roughly the same age. A 20-year-old house is fundamentally different from an 80-year-old house, for example.
Also, comps should be of a similar size with similar square footage to the home you’re looking at. Remember, size has a significant impact on the cost per square foot. Finally, search for homes with similar attributes. For example, if you’re looking at a home with an in-ground pool, your comps should also have in-ground pools.
Once you’ve found a few good comps, perform the calculations we talked about, and determine the average price per square foot. This will give you a good idea of whether you’re getting a good deal and what your negotiating position is.
Of course, to do all these calculations, you’ll first need to get your hands on some reliable data on actual sales in the area you’re considering. So, how do you find out the listing price and square footage information you need?
To begin with, you could simply check some online sources. Unfortunately, not all of these sources are reliable. For example, many include houses that are still on the market, which can skew the numbers higher. Make sure you’re only looking at closed listings if you’re using an online source.
You can also check public records. This is the most reliable source, but property records are not always available online or easy to use. A local multiple listing service fills a similar role but may or may not be available in your area.
Regardless of your location, a real estate agent can be an excellent source. You’re going to want an agent to handle your purchase anyway, so why not connect with one right away? Ideally, this agent should be local. The better they know the area, the better insight they can give you into a home’s value.
How do you calculate price per square foot for rent?
To calculate the price per square foot for a rental, take the monthly rent and divide it by the floor space. That will give you the monthly price per square foot. If you need the annual price, just multiply that by twelve. For example, if the rent is $2,000 per month and you have a 500 square foot apartment, you're paying $4 per square foot a month or $48 per square foot annually.
How do you calculate price per square meter?
The formula to calculate the price per square meter is price divided by size (in square meters). So for example, if you have a 100-square-meter house selling for $200,000 you take the total price, then divide it by the number f square meters, which would give you $2,000 per square meter. Keep in mind that the price per square meter is generally much higher than the price per square foot as a square meter is equal to 10.7 square feet.