Price per square foot is a common metric in real estate; many buyers use it to assess a home’s value. But looking at that data alone without some appropriate filtering and context won’t really help you understand whether a house is a good deal or not, or how to negotiate with a seller.
Consider the nuances at play when you’re searching for a home, and then do the math that makes sense for your highly specific search. For the most useful metrics, you should be thinking along the lines of: How do you calculate price per square foot for a particular block, area, or neighborhood — or for recent sales? And how do you know which homes and which sales data is actually relevant to your own home search, with its unique specs?
Here’s our expert-sourced guide on how to calculate price per square foot in the most meaningful way possible — with tips on how to choose comparable listings, and where you can find accurate sales data for your own area.
How to calculate price per square foot
First, here’s the formula for calculating price per square foot at the most basic level: Take the price and divide it by the home’s square footage. The price per square foot tends to be higher for smaller houses, and lower for larger houses. Let’s look at some examples of how that works:
- A 1,500-square-foot home is listed for $300,000. The price per square foot is $200.
- A smaller, 1,200-square-foot home nearby is also listed for $300,000. The price per square foot of this home at the same listing price is $250.
- A larger, 2,500-square-foot home on the same block is listed for $350,000. The price per square foot is $140, substantially less than the price of both smaller homes by this metric.
Keep in mind that this calculation alone doesn’t give you any details about things like a home’s layout or its amenities and features. For a more contextualized and therefore useful calculation, think of it this way: “You can get a good value range per square foot with the basic calculation, but then you need to adjust for improvements,” says Zach Harris, a top-selling agent in Southern California.
“You have to add things such as a pool, landscaping, views, lot size. There are other factors besides just the price per square foot of the home that you have to take into consideration.”
He does note, however, that a buyer might be able to use these nuances to boost their negotiating position: “It can certainly help you if there is a home with an inferior view at a lower price per square foot. You might want to take that as a comp to show the seller, and it might help you out.”
In other words, being educated about price per square foot can help with leverage… even though there are additional factors that go into a home’s value.
How to calculate price per square foot for multiple homes
Here’s the formula for calculating price per square foot for multiple homes:
(House 1 price / House 1 square footage) + (House 2 price / House 2 square footage) + (House 3 price / House 3 square footage) / (total number of houses = 3)
This figure helps you come up with a contextualized range from a larger set of data.
So let’s see what that looks like using our same three sample home prices and sizes from above:
House 1 (price of $300,000 divided by its square footage of 1,500 square feet = $200 price per square foot) + House 2 (price of $300,000 divided by its square footage of 1,200 square feet = $250 price per square foot) + House 3 (price of $350,000 divided by its square footage of 2,500 square feet = $140 price per square foot) / 3 = $196.67
So in round numbers, consider about $200 per square foot as the average range in this sample set.
How do you know which homes to compare?
Of course, to get the most useful data, you need to know how to choose which homes to compare to your subject home. These are also called “comparable listings” — or just “comps.”
You’ll want to look for comps that sold recently, ideally within the last three to six months. You’ll also want to make sure your comps are located near the subject property — the closer, the better. Plus, your comps should be about the same age as your subject property.
Beyond that, comps should have similar attributes to your subject property — for instance, if the property you have in mind has a pool, so should the comps if possible.
And your comps should have similar square footage to your subject property as well.
“For comps, I usually go within 100 square foot of the subject property. So if the subject property is 1,500 square feet, we’d go down to 1,400 and go up to 1,600,” Harris explains. And he takes a similar approach for the age of the home. “Say it’s 1995 — we’d give a 10-year age range, down to 1985 and up to 2005.”
From there, “you have to really narrow those down, see which ones are the closest to your subject property, and then go in and look at improvements compared to your property, such as view or lot size,” Harris explains.
Where do you find the data you need?
You’re going to need data to do all these calculations, of course. So where do you get the sales price and square footage intel you need to calculate price per square foot?
Some online sources are more reliable than others. So if you use those, you want to make sure these sales actually closed before using the price per square foot data in your own home search.
Public records data is not always immediately accessible — but it can be one of the most reliable sources of data for buyers, and should include recorded real estate sales. Find repositories of public records data online here.
Some local multiple listing services — or MLSs — will provide data to the public; check with yours to find out.
Real estate brokerages sometimes will print or mail information about homes that sold recently. You might go to local offices to check for such info.
Harris suggests that you could also call a title rep and get a property report sent to you — usually free of charge — and give you some data to start with.
But in an ideal situation, you’ll want to connect with an in-the-flesh real estate agent: A good agent can help you find comps and calculate price per square foot data if that’s an important part of your home search.
“The best resource is always going to be going directly to a real estate agent who has MLS data and can get you all the comparable properties,” Harris says. “Not only the sold ones but the active, the pending, the sold, the expired.”
He notes that expired listings tell you what people weren’t willing to pay — and that can be useful — but the sold comps are always the best and most accurate for deriving price per square foot value.
“So I’d say your No. 1 source would be a real estate agent,” Harris says.
And ideally, that person would be local to your specific area. “Local agents know the local areas better than an out-of-area agent, who might be taking the city on a whole, where local agents know that certain neighborhoods bring more or bring less value. So it’s good to have somebody local that knows the neighborhoods intimately.”
Header Image Source: (Oleg Magni / Pexels)