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Are you a first-time homebuyer who needs to learn how to calculate the price per square foot for a home you want to buy? We have the perfect guide for you!
At Homefinity, we understand that purchasing a new home can be an intimidating and overwhelming experience. It’s important to make sure that you’re making the best financial decision for your family.
Taking into account different costs and property features associated with buying, such as location, quality of construction, and size—just to name a few—will help give you an accurate idea of what potential properties may cost in the long run.
Being able to calculate the price per square foot is key: it’s one of the best ways you can determine if a particular property fits within your budget.
Understanding price per square foot
Price per square foot (PPSF) is a common metric used in the real estate industry to evaluate and compare properties. It’s calculated by dividing the total price of a property by its total square footage.
The resulting number helps buyers understand the value of a home based on its size and location.
Remember that PPSF should not be the sole determining factor when evaluating a property, as there are other aspects like the quality of construction, neighborhood amenities, your own budget, and more.
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How to calculate the price per square foot
Calculating a home’s price per square foot is a straightforward process:
- Determine the total square footage of the property: Measure the length and width of each room and multiply these two numbers together. Add up the square footage of all rooms to get the total square footage of the house.
- Find the sale price of the property: You can usually find the sale price of a property on websites like Zillow, Redfin, or Trulia or through your real estate agent.
- Divide the sale price by the total square footage: Take the sale price of the property and divide it by the total square footage. The resulting number—voila!—is the price per square foot.
Example: If a house has total square footage of 2,000 sq. ft. and is listed for $300,000, its price per square foot would be $150 ($300,000 ÷ 2,000).
Why price per square foot matters
Price per square foot is a valuable tool for both buyers and sellers. Here’s why:
- Buyers can use PPSF to compare properties and determine if a home is fairly priced based on the local market and similar homes in the area. It also helps buyers identify potential bargains or overpriced homes.
- Sellers can use PPSF to price their homes competitively and attract more interested buyers. By analyzing comparable properties and their PPSF, sellers can determine an appropriate listing price.
Factors that can affect price per square foot
While the price per square foot is a useful metric, it’s essential to understand that various factors can influence it, including:
- Location: Homes in desirable neighborhoods or with access to good schools, public transportation, and amenities may command higher prices per square foot.
- Home age and condition: Newer homes or those in excellent condition may have a higher PPSF than older homes or those requiring significant repairs or updates.
- Home size: Larger homes tend to have a lower PPSF because the cost to build is generally lower per square foot for bigger properties. Smaller homes might have a higher PPSF due to the higher cost of building materials and labor for small projects.
- Lot size and features: Homes with large lots, views, or special features like pools or outdoor living spaces may have higher PPSF.
- Market conditions: Local real estate market conditions can also impact PPSF. In a seller’s market, where demand is high and inventory is low, PPSF may be higher than in a buyer’s market.
Considerations when using price per square foot
When using PPSF to evaluate a property, keep the following considerations in mind:
- Don’t solely rely on PPSF: While PPSF is a helpful tool, it shouldn’t be the only factor you consider when evaluating a property. Make sure to take into account other factors like the neighborhood, school district, and home condition.
- Compare similar properties: When comparing the PPSF of different homes, make sure they are similar in size, age, and condition. Comparing the PPSF of a small condo to that of a large single-family home is not an accurate comparison.
- Understand local market trends: Familiarize yourself with the local real estate market conditions, as they can significantly impact PPSF. Research the average PPSF in your desired area to make informed decisions.
Calculating a home’s price per square foot is a valuable tool for understanding property value and making informed decisions when buying or selling a home. But it’s important to also consider factors such as location, home condition, and market trends.
Embarking on a home purchase journey can be exciting and fulfilling. Homefinity’s loan officers are here to help you navigate through all the information and calculations, ensuring you find the perfect and most affordable home for you.
Photo by Max Rahubovskiy