What You Can Learn From Price Per Square Foot

While asking price is usually the primary number buyers consider during the home shopping process, it's not the only cost-related figure you should consider. You'll notice most home listings also mention the cost per square foot. While this metric can be helpful, it's important to keep it in perspective.

When comparing two homes, the price per square foot and the total square feet will simply tell you which home offers more space at a cheaper price. However, this metric on its own isn't very useful. But when you're able to compare it against a larger sample size of nearby homes, you might be able to learn a bit more.

Calculating Averages and Medians
To determine the true value of a price per square foot figure, you need a good sample size to compare it to. The average price per square foot and the median price per square foot can be helpful when putting things into perspective.

• Average Price Per Square Foot: The square foot cost of each sold home within a specific geography and timeframe divided by the total number of homes sold. With averages, one or two high-priced homes can skew the average.
• Median Price Per Square Foot: The median is the true middle value between the highest price per square foot and the lowest price per square foot within a specific sample size. The median offers a better "middle ground" benchmark than the average.

The average and median cost per square foot can give you a good idea of how hot a local real estate market is within a particular neighborhood. You can easily find these metrics on most popular real estate websites.

One thing that makes calculating an average cost per square foot difficult is the lack of universal or standard laws that dictate how the figure is calculated. As a result, some homeowners may factor in unfinished basements or attics while others do not.

Why Price Per Square Foot Is Useful
Comparing the price per square foot on a listing to the average or median price per square foot within a specific area can give you additional insight into whether the home is appropriately priced relative to its size.

If the cost per square foot is above the local median, you could potentially use this as negotiating leverage. If the price per square foot is significantly lower than the median, the home might be a great deal.

Price Per Square Foot Isn't Everything
Price per square foot is just one of many factors to consider when evaluating a home. While it can tell you the price in relation to the size of the property, remember that not all homes are the same. Homes vary by features, amenities, features, and dozens of other factors that can drastically impact the sale price.

Price per square foot is an important consideration, but be sure to keep things in perspective. Your real estate agent can help you evaluate all factors of a particular property to determine if it's priced fairly and if there is any room for negotiation.

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