Understanding “Price Per Square Foot”
Price per square foot is a real estate concept that is easy to understand but equally easy to misuse. The formula is pretty simple: To determine the price per square foot, you divide the house’s sale price by the house’s square footage.
Price per square foot helps look at broad market comparisons, such as comparing one entire metro area to another or looking at an area’s average change over time. It is not, however, accurate in figuring out the value of your home.
Why? Unfortunately, the price per square foot fails to consider the most important factors when pricing a home.
First and foremost, it makes assumptions about the home’s amenities. We all know the quality of materials used in home construction and the condition of the home’s appliances and other features can dramatically impact a home’s value. A kitchen with Italian marble surfaces versus one with pressboard countertops will have different values. The price per square foot in a given neighborhood will blend these homes and produce an average.
Second, the price per square foot assumes locations are identical, but in almost any metro area, there are up-and-coming neighborhoods and neighborhoods in decline. The price per square foot near an abandoned industrial zone will vary considerably from one near a well-established downtown district with an excellent walkability score.
Third, even the simple calculation of price per square foot can vary depending on the items included. Which square footage is valid if one has a garage converted into an in-law suite and another home doesn’t? And what about the house or lot size? Sometimes above or below-grade lots can also influence the price per square foot.
If you are looking for a home that represents good value for your money, then the price per square foot can be a helpful metric. However, it is essential to remember that the price per square foot can vary widely depending on the location of the home, the size of the home, and other factors. As such, it should only be used as one piece of information when deciding which home to purchase.
Resources and Tools
Price per Square Foot helps compare homes, but when it comes time to set a value for your home, we have other tools to help you determine that number.
When valuing a home, we work hard to get an accurate value considering dozens and dozens of factors. If you would like an accurate estimation of your home’s value in its current condition and location, we would be happy to help. We have resources and tools that consider numerous variables to arrive at an accurate value. Get in touch today, and we will show you what goes into determining the optimal value for your home.