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Price per square foot, a metric often used in helping to determine a home’s value, can be a useful comparison tool. It’s a tricky concept, though, because price per square foot multiplied by square footage doesn’t necessarily add up to an accurate fair market value. For example, smaller houses and those with unique features typically command a higher price per square foot, while larger but less unique houses typically have a lower price per square foot. There are lots of other factors at play too — read on to learn more.
What determines the price per square foot of a house?
Unlike calculating a home’s actual square footage, which is very straightforward, there’s no mathematical formula to determine price per square foot — every house is unique. A number of factors will influence it, including location, lot size and the quality of the local school district. In addition, homes with recent renovations will typically have a higher price per square foot than those with no updates.
Average vs. median price per square foot
According to the National Association of Realtors, in March 2022, the average price per square foot of a home was $244, while the median price per square foot of a home was $202. Why the difference? The numbers are calculated differently.
Median price per square foot is the price that’s in the middle of all home prices being compared. For instance, if you’re looking at 20 homes that recently sold, the median price would be that of sale number 9 or 10 in that list — half of the sample group sold for more than the median price, and half for less.
To calculate the average, however, you would add up the cumulative price per square foot of all 20 homes, and then divide that number by 20. Unlike a median, an average can be skewed by homes in the data set that have unusually low or high prices per square foot relative to comparables.
Is price per square foot useful for determining home value?
In many cases, price per square foot is helpful in determining whether a home is reasonably priced. If you’re looking to buy a house, you can use it to inform what kind of offer to make. You’ll want to work closely with your real estate agent and examine sales comparables very carefully.
“First you look at the price per square foot and see if it matches up with the features,” says Compass broker Kevin Kieffer, who is based in Walnut Creek, California. “If you have a tennis court or a pool, that’s not the house itself, but that makes the property more desirable and drives up the cost per square foot.”
A house with a high price per square foot, for example, might indicate high-end features like a swimming pool or recent renovations. Kieffer gives the example of a Bay Area home that was just 1,000 square feet but sold for a record price despite its small size, because it backed up to a trail with gate access and was located on a relatively large amount of land. Though it was not an exceptional home, buyers were willing to pay a premium per square foot due to its unique features, he says.
Price per square foot can help you understand the value of a home. To get a sense of the going rate in your desired neighborhood, it’s important to review both median and average price per square foot numbers, since the average can easily be skewed by outliers.