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6 Min. Read

Average Price per Square Foot: How to Calculate It

Average Price per Square Foot: How to Calculate It

Knowing how to calculate the average price per square foot is handy, but it can also help make more informed decisions. 

There’s a lot of different questions you need to answer when you’re looking into purchasing a new home. Do you want to build a new home? Or do you want to purchase a home already on the market? Deciding what’s best for you often comes down to one main area: finances. 

Regardless of which route you take, the first dollar figure that you might notice is the overall price of what it would cost. The next is the average price per square foot. But there can be different factors to take into account when trying to calculate costs. 

Let’s take a look into how to calculate the average price per square foot and why it matters.

Here’s What We’ll Cover:

What Is Average Price per Square Foot and Why Can It Vary?

How to Calculate Price per Square Foot

What’s the Difference Between Median and Average Price per Square Foot?

Benefits of Knowing How to Calculate Average Price per Square Foot

Key Takeaways

What Is Average Price per Square Foot and Why Can It Vary?

Essentially, the average price per square foot of a home is in relation to its current market value. The market value is then divided by the square footage to determine the average square foot price. But sometimes the square foot costs can significantly vary from one location to another.

One of the biggest reasons for this is that different locations have different market values. It could also have to do with the proximity of a home to school or business districts, green spaces and even things like the view. Each of these factors will affect the market value of the home, which in turn will impact how you calculate square footage. 

But depending on your location, the average price per square foot might not tell the whole story. For example, a home in San Francisco would almost be impossible to compare to a home in New York City. This is due to the number of factors that affect a home's market value. 

How to Calculate Price per Square Foot

To keep it simple, calculating a home's price per square foot can be done by taking the listing price of the home and dividing it by the square footage. You can even take it further if you want to find the average price per square foot in a particular area. To do that, you would perform the same calculation on several homes that were recently sold and then find the average of all those calculations.

Knowing how to calculate the average price per square foot can be useful to see if a home is either overpriced or underpriced. This can let you make a more informed purchase decision. But again, sometimes the price per square foot calculations can vary depending on different factors.

For example, it’s important to take into account things like the overall condition of the home or extra amenities that could be included. It only calculates the price per square foot for the physical home itself and doesn’t take into account the property that comes with it. 

What’s the Difference Between Median and Average Price per Square Foot?

As outlined above, the average price per square foot is a simple calculation that divides the purchase price by the home's square footage. You can also do this to figure out the average price per square foot for a specific area or neighborhood. Just add the square footage costs of each home together and divide it by the number of homes that were sold.

When it comes to the median price per square foot, this relates to what the middle price point is. It splits the average between half of the homes sold above the median line and the other half that get sold below. It can often be a more accurate way to measure value. 

Imagine all of the homes in a neighborhood listed from highest to lowest by their value. The home that lands in the middle of the list would represent the median home size price.

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Benefits of Knowing How to Calculate Average Price per Square Foot

When you know the average price per square foot you can make a more informed decision when it comes to purchasing or building a home. And calculating those averages can be a handy tool to know when it comes to new construction. The square foot costs to build a new home is often higher compared to purchasing a home already on the market. It can sometimes take into account things like building materials and labor costs. 

Calculating the average and median price per square foot in a neighborhood can also give more negotiating power. Let’s say you have done the calculations for the average price per square foot for the single-family home you want to buy and determine it to be $175. You also did the calculations to find the median price for the neighborhood, but it comes in at $145.

It might not seem like a huge difference, but the discrepancy can tell you that the cost of the home you’re looking at might be overpriced. Using the average and median price information can allow you to negotiate with the seller to hopefully agree on the lowest price. 

And it can work in the opposite way. If the average price per square foot that you calculate is lower than the median price, you might have stumbled upon a great opportunity. 

Key Takeaways

Knowing how to calculate the average price per square foot can be useful information to know when you’re assessing a home's value. You simply take the purchase price and divide it by the square footage. But there are some factors and limitations you need to consider when doing this.

It’s important to keep these details in perspective and recognize when there are other areas you should be considering. Everything from proximity to school districts, business districts and even the view can all skew the calculations that you do. Plus the general location where the home's located plays a role in the average cost per square foot.

The average price per square foot is useful information to understand the value of a home. But take the time to discuss details with your real estate agent to consider any other factors.

Read more helpful breakdowns on our resource hub.


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