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In real estate, price per square foot is a common metric that many buyers use to determine the value of a home. However, looking at that data without some context and filtering based on that criteria will not help determine whether or not a house is a good deal. It also won’t indicate whether the buyer should engage in further negotiations with a seller.
When searching for a property, consider all possible factors. After you do so, you should figure out a price point that best fits your search criteria. For the most valuable KPIs, think about: a) how much does it cost per square foot to complete a specific type of transaction (buying or selling); and b) how you can determine which data points pertain to your search for a new home considering your unique specifications.
Here’s our expert-sourced advice on how to determine the price per square foot in the most meaningful way imaginable – with recommendations on how to identify similar listings and where you can acquire accurate sales data for your specific area.
Here’s the simplest formula for calculating the price per square foot: divide the purchase price by the total square footage of the home. Naturally, smaller houses will have a higher price per square foot, and larger houses will have a lower cost per square foot.
Consider the following examples of how this works:
Note that this estimate alone does not tell you anything about things such as the layout of the house or its amenities. According to top-selling real estate agent Zach Harri, a simple calculation is not enough to determine the price per square foot; you also have to charge for upgrades for a more “contextualized, and therefore practical, calculation.”
In other words, an additional amenity such as a pool, landscaping, premium lake or city views, and the lot size should be added to the calculation. Nevertheless, Harri notes that a buyer may be able to use these details to enhance their negotiation position with the seller.
Though different aspects factor into the value of a house, it is helpful to learn the basics of how prices vary based on the square footage.
Read Also: Guide For Measuring Square Footage
The square foot pricing calculation formula for multiple properties is as follows:
(House 1 priced at $300,000 / 1,500 square feet = $200 per square foot) + (House 2 priced at $300,000 / 1,200 square feet = $250 per square foot) + (House 3 priced at $350 million / 2,500 square feet = $140 per square foot).
Thus, the average price per square foot among these properties is $200 per square foot.
It’s a good idea to know how to evaluate the square footage between multiple properties. This is also known as ‘comparable lists,’ or simply ‘comps.’
In the last three to six months, you’re preferably going to hunt for comps that were sold recently. You will also want to ensure that your businesses are placed as close as possible to that property — the closer, the better. Moreover, your comps will be impacted by the age of the property.
In addition, comps should have identical property qualities — for example. If the property you are thinking of has a pool, comps should also have pools.
The square footage of the comp should also be equivalent.
“I normally leave the property within 100 square feet for comps, and we would go down to 1,400 – 1,600 square feet if the property is subject,” Harris explains. He takes the same approach with the property’s age.