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Calculate Price Per Square Foot
The price per square foot is one of the many real estate tools that help you fairly value your home. Using price per square foot gives you a general idea of how much you’re paying compared to houses of different sizes. It is a widely used metric when comparing homes within the same area because you should reasonably expect to pay the same price relative to the home size no matter which house you buy in a neighborhood. Price per square foot also helps you compare home prices to other areas by comparing averages of different target locations. It can help you find value in your home purchase or frame things in an easy to compare metric.
Average and Median Price Per Square Foot
Typically, you will see two metrics for the expected price per square footage: the average and the median. The average price is the overall arithmetic mean of every residential property. You can calculate the average home price by adding all home sale prices for the year and dividing that total sum by the number of sales. You then have to divide this number again by the average square footage of all these homes. Unfortunately, the average home price is not usually used because it weighs all home purchases the same, and very cheap properties or very expensive properties will have a large impact on the average. For most Americans looking to purchase a reasonably priced home, the average will usually skew towards cheaper homes because of the larger quantity. In 2020, the national average price per square foot reached a high of $122.12 according to Statista.
On the other hand, the median price is often used as a price metric because it is the middle price if all the home prices per square foot were organized on a number line. The median home price ignores how extreme the cheapest and expensive homes are. Home buyers looking for middle-class homes will typically find themselves somewhere in between the average price and median price. The national median listing price per square foot in 2020 was $155 according to Zillow.
Both of these metrics provide information that you can use while comparing different home prices and their price per square footage. However, the price per square foot can vary significantly throughout the country with homes costing less than $30 per square foot in some cities and over $800 in others. It can even vary between buildings depending on the type of building, its age, and many other factors. The average and median price per square foot should only be used as supplemental information or a starting point for your research.
How to Calculate Price Per Square Foot
Once you gather the necessary information, calculating your price per square foot is fairly easy. The most difficult part of calculating this number is getting the total square footage of the property. Fortunately, many online calculators assist you as long as you have the property dimensions. Most property listings will also include the square footage on the website they are listed on and on information sheets handed out at open houses. The other number you’ll need is the total home price. While there are many closing costs associated with a home purchase, you should use the listing price because you can easily compare it to other homes. This will always be easily accessible through any source where you can view the home listing or interact with the seller. Then the price per square foot is as follows:
- Price Per Square Foot ($/ft2) =Home Price Square Footage
If you had a home with 1,500 square feet and it costed $300,000 dollars, the price per square footage would be:
Once you have this number, you can compare it with the national median and homes in the same area. It’s best to consider all levels (local, state, and national) to make sure your comparison is robust. You should also compare it to other homes that are currently being listed. If you can get a home with a lower price per square footage, you may be able to get a better deal even if the purchase price is higher. It’s also important to note that the price per square footage is not the actual amount you pay. The price per square footage calculation does not take into account closing costs, which often are much more expensive than home buyers expect. You should only use the price per square foot as a number to be compared against other prices per square foot for a frame of reference.
Limitations of Using Price Per Square Foot
Unfortunately, there are several limitations to using price per square foot, which is why it is recommended that you only use it as one of the many real estate tools you use during a home purchase. Limitations vary in severity depending on the home and your situation, but it’s good to keep them all in mind:
Sticker Price: Price per square foot uses the “sticker price” or the price that the home is listed at. However, home buyers often have to pay closing costs that vary by location and property. The price per square foot isn’t the price that you pay per square foot, but rather how much of the total purchase price is allocated to each square foot. This distinction is subtle but important to know so you don’t accidentally pay more than what you expect.
Home Condition: While it may be easy to compare a single number between many different homes, a square foot is not a reliable metric for what you’re buying. In most cases, you’re paying for more than just the square footage. You may get a lower price if urgent repairs are required. There may also be fewer amenities or any one of several reasons that the price per square foot is lower than those of the properties surrounding it. Generally, valuing high-end and luxury homes is much more inaccurate because it’s most useful to compare similar homes. Luxury homes vary significantly by quality, which makes it difficult to compare them with other luxury homes. The price may also include extra work that doesn’t add square footage but does increase the condition of the home through better finishes, higher quality building materials, a better home design, etc.
Location: Be careful when comparing the price per square foot between two properties in different locations. The price per square foot compares two homes that ideally are identical, but in the real world, this never happens. Home prices vary by location and properties may have different location-based benefits as well. For example, a lakeside house will often be more expensive per square foot than an inland house because you are also paying for the view. Even a house down the street may be closer to noise, which could affect the price. Price per square foot fails to account for external amenities that don’t affect the square footage.
Living Space: Price per square foot is calculated using the square footage of the property’s living space. Unfortunately, basements and attics are often not included as living spaces even though they are certainly assets to the property. The price per square foot may vary because a homeowner with a large basement and attic may have factored it into the overall price. When comparing the price per square foot between different properties, it is important to make sure that you are comparing the same thing and that you know what you are comparing. If you include basement or attic space in one property’s total square footage, then you have to do the same for every house that you compare it to for a fair comparison. If you choose not to include it in the square footage, keep the existence of different basements and attics in mind when comparing properties. It’s also important to keep track of wasted space. Many homes have long hallways, stairs, and closets that are included in the square footage even though they are not part of a room. This may mean you are paying for more square footage than you actually get, which would make your price per square foot seem cheaper than it is.
Personal Preference: Price per square foot is a straightforward number that is easy to use. Since it is so simple, it cannot capture more than a small portion of the true value of a property. Personal preference is something that cannot be quantified by the home price or the price per square foot. Your personal preference will differ from someone else and you may want a home with a higher price per square foot simply because you think it looks nicer or you prefer the layout. You can use price per square foot for a general frame of reference and to ground your expectations, but it is not a decision-making tool. You have to pick the features and price that most match your preferences.
Different Sized Homes: Price per square foot is a good way of comparing similar homes of similar sizes. Even though price per square foot puts different sized homes in a comparable metric, large disparities in home sizes distort the overall home price to the point where using price per square foot becomes less useful.
For ExampleIf home A has a square footage of 4,000 square feet and home B has a square footage of 2,000 square feet, but both homes have a price per square foot of $100, home A’s home price would be $400,000 and home B’s price would be $200,000. Clearly, there is a large difference in the overall home price. Home A is likely a more luxurious home than home B and would be expected to have a more expensive price per square foot. Even with the same square footage, home A is likely to be a better deal. This also means that home A and home B are not comparable.
Negotiating Using Price Per Square Foot
Before you end up paying the sticker price for a property, consider negotiating. This is a powerful tool that saves home buyers thousands of dollars on a home purchase. In 2020, over half of home purchases were completed at a price below the asking price. Using the property’s price per square foot is an extremely effective way to help negotiations.There aren’t any clearly defined rules for negotiating with price per square foot, but you can follow a broad structure.
Take any listings in the surrounding area that you can find and gather all their prices per square foot. You can then calculate the average or median and compare it to the price per square foot of the property you’re considering purchasing. If the average/median price per square foot is lower, you can get the seller to either lower the price or if you’re lucky, match it. If the median price is higher than your current offer, you may already have a good deal on your hands. If possible, you should try using comparable homes to strengthen your case because even within the same neighborhood, homes can greatly differ.
Price Per Square Foot to Build a House
When looking to build property, you have to carefully consider the costs of building a house. The price per square foot to build a house is the total construction costs divided by the total square footage. It costs just under $300,000 on average to build a new home in 2021. With such high costs, you should be making sure that your price per square footage is low to get the most out of your investment. New properties usually cost between $100 and $200 per square foot, but it could be as high as $500 for higher-end homes.
Generally, you should expect your costs to be distributed as follows:
- Labor Costs: 30-60%
- Materials: 40-50%
- Architectural Design, Permits, and Administration: 15-25%
If your house includes a basement, you should expect to pay between $10 and $100 per square foot, depending on if you finish it. The total cost per square foot of a house with a basement should rise by this amount to about $110 to $300 per square foot.
Newer homes under construction will typically have higher prices per square foot than existing homes. Older homes are made out of older materials, which are usually considered less valuable. Fortunately, the age of the home affects the price much less than the surrounding area and location.
The Most Expensive Prices Per Square Foot
Manhattan, New York
At an estimated average price per square foot of $1,792, Manhattan definitely takes the top spot for the most expensive city in the US on a per square foot basis. This beats out the next most expensive location by over $600 per square foot. The median listing price for a home in Manhattan is over $1.5 million and the median selling price is just under $1 million. Even as a current buyer’s market, Manhattan is notorious for being the most densely packed borough of New York City. Home to the financial center of the US, Wall Street, and a plethora of fine arts, Manhattan is a target destination for many ambitious people. It also includes some of the most popular landmarks in the US such as Central Park, the Empire State Building, and the Statue of Liberty, many of which are considered hallmarks of American culture.
San Francisco, California
San Francisco is yet another location that operates as a hub for American interests. As the technology hub and home to Silicon Valley, San Francisco is the place to be for all startups and tech-focused individuals. While less expensive than Manhattan on a per square foot basis with an estimated average cost per square foot of $1,126, San Francisco has the highest home prices in the US. It has both a median listing price and median selling price of about $1.3 million making it a neutral real estate market. The ever growing tech industry has led San Francisco to being one of the fastest growing cities and this growth is poised to continue as technology becomes an even larger part of our daily lives.
The next most expensive city on a per square foot basis is Aspen, Colorado with an estimated average cost per square foot of $1,079. This makes it much closer to San Francisco and for good reason. Located in the mountains of Aspen, Colorado, “Billionaire Mountain” contains some of the most expensive real estate in the world. Home prices go as high as $49 million due to the astounding scenery of downtown Aspen and breathtaking mountain views. The name comes from the fact that many rich individuals who occupy a spot in the top 1% choose to own a home in Aspen as a winter destination. As far as low-population real estate goes, Aspen is one of the most expensive places to live in the world.
San Mateo, California
San Mateo is one of the most expensive cities in California next to San Francisco and by extension, one of the most expensive in the US. The cost of living in San Mateo is 48% higher than California and 194.5% above the national average. Housing costs are 108% higher than California and part of this can be attributed to San Mateo’s high median household income, which is the second highest for the West Coast. San Mateo’s estimated average price per square foot is $971, which is just over $100 less than Aspen. San Mateo’s attractive climate makes it a target destination for many.
Santa Clara, California
Yet another city from California, Santa Clara is the fifth most expensive city on a per square foot basis with an estimated average price per square foot of $785. This is a considerable jump from San Mateo of just under $200, but it’s still plenty expensive compared to the rest of the US. California real estate is one of the most expensive states in the US. Relative to other cities in California, it may seem like Santa Clara is a steal. Located in the center of Silicon Valley, Santa Clara residents are not far from some of the largest tech firms in the world.
How Large is One Square Foot?
Whether you’re converting between different units or trying to conceptualize how large a certain square footage is, putting a square foot in a relative frame of reference makes it easier to understand a home’s total square footage. One square foot is a square with side lengths of 12 inches. This means that the area of a square foot would be 12 in * 12 in = 144 in2. This is about the same size as a laptop.
You can also convert a square foot into other units of measurement if that’s what you’re used to. One foot is approximately equal to 0.3048 meters. However, a square foot has two dimensions, so to convert from a square foot to a square meter, you have to do this conversion twice. This means that one square foot is approximately equal to 0.3048 * 0.3048 = .092903 meters. Similarly, one foot is the same as one third of a yard, but one square foot would only be 1/3 * 1/3 = 1/9 yards. To convert from any square area to another square unit of measurement, you can use the following conversion factors:
- x Square Feet = x * .092903 Square Meters
- x Square Feet = x / 9 Square Yards
- x Square Meters = x * 10.7639 Square Feet
- x Square Meters = x * 1.19599 Square Yards
- x Square Yards = x * 9 Square Feet
- x Square Yards = x * .836127 Square Meters