Does Price Per Square Foot Matter When Buying a Home?
When it comes to buying a home, your eyes likely go directly to the listing price. But there are other figures that you might want to look at to determine whether or not the home is priced right, including the price per square foot.
However, it's not just the price per square foot of the subject property in question, but also the average price per square foot for properties in the area.
But how much does this figure matter when you're out searching for a new home?
The truth is, the average price per square foot only provides one number. It may not necessarily tell you about the condition of the home, its features, and whether or not it suits your lifestyle.
The price per square foot can be a somewhat useful tool to use when shopping for and comparing homes, but it’s only one tool of many that you can utilize to ensure you're getting the best price for the home.
How is the Average Price Per Square Foot Calculated?
Calculating the price per square foot is straightforward: simply divide the listing price by the square footage. For instance, the price per square foot of a home that's listed for $500,000 and is measured at 1,000 square feet would be $500 ($500,000 ÷ $1,000).
That's simple enough, but what you really want to know is the average price per square foot for homes in the area. This will give you a better idea of whether or not the subject property you're interested in is priced too high, too low, or just right.
No two homes are exactly alike, but the price per square foot can be helpful when comparing two similar properties in the same area.
For instance, let's say there were 3 homes recently sold in the same neighbourhood:
Home #1: 3-bed 2-bath townhouse, 1,200 square feet, sold for $600,000
$600,000 ÷ 1,200 = $500 per square foot
Home #2: 3-bed 2-bath semi-detached home, 1,400 square feet, sold for $750,000
$750,000 ÷ 1,400 = $535 per square foot
Home #3: 3-bed 2-bath townhouse, 1,300 square feet, sold for $650,000
$650,000 ÷ 1,300 = $500 per square foot
At this point, you can add all 3 figures together, and divide the answer by the number of properties (in this case, 3):
$500 + $535 + $500 = $1,535
$1,535 ÷ 3 = $511
Based on the answer above, it looks like each property was priced and sold accordingly, given the very close comparison on their respective price per square foot and the fact that these prices are very close to the average.
Using this example, the average price per square foot of homes in the area is $511. If you're looking for a home in the same area for a home that's anywhere from 1,200 to 1,400 square feet, then you can use $511 per square foot as a guide.
If you see a home that's priced a lot higher than this number, then you know it could be priced too high. But if you see a listing with a price per square foot that's lower, then you may have found a good deal.
Don't Depend Too Heavily on Price Per Square Foot
While having this figure in mind can be helpful, it shouldn't be relied upon entirely. There are several other factors that play a role in determining the value of a home beside the price per square foot, such as the following:
Condition of the home
Features, amenities, and upgrades
Floor plan and layout
View
Location in the neighbourhood
Lot size and features
As you can see, there's a lot more that goes into determining the current market value of a home. And while the price per square foot may be a great starting point, there are several other factors to consider.