How important is calculating the price per square foot by ZIP code of houses during your home search?
The average price per square foot in new single-family homes in the U.S. reached an all-time high of $122.12 in 2020. This lets you know that prices are generally on the rise. But what about in the specific neighborhoods where you’re looking for a home?
When you’re starting on your homebuying journey, it’s important to use all the tools in your arsenal to determine if a house is priced fairly. Price per square foot, location, and other factors play a large role in determining a home’s price.
If you know how to calculate the price per square foot by ZIP code and include other factors in your research, it’s easier to see whether homes are competitively priced in the areas you’re searching. Using data and expert opinions, we’ll help you learn how to calculate square footage costs, including existing homes versus new builds, and account for home location on your house hunt. This will help you price homes effectively and may even give you an edge in your negotiations.
How to calculate square footage costs
Calculating the average price per square foot of a home typically involves using a simple equation of price of the home divided by the square footage of the home. This will give you the average price per square foot for that particular property.
For example, the math for a home with 2,000 square feet that sells for $400,000 would look like this:
$400,000/2,000 = $200 per square foot
If you want to quickly go through the math, you can use an online calculator for fast results. Using a calculator can also help if you want to find the median or average price per square foot of a number of homes in the same area or neighborhood.
But keep in mind that the median price per square foot and average price per square foot are not the same thing. The median price is the value separating the higher and lower halves of the data, or often the middle point of a data set. The average, or mean, price is found by adding all the prices together and then dividing by the number of homes.
Here’s an example showing you how to find the median and average price per square foot of a group of homes after you’ve done the math for each home to find its individual price per square foot:
House #1: $230 per square foot
House #2: $225 per square foot
House #3: $200 per square foot
House #4: $190 per square foot
House #5: $180 per square foot
If you take the numbers from highest to lowest, the exact middle point would be $200 per square foot. This gives you a median price per square foot of $200 for this sampling.
To find the average price per square foot of these homes, add all the prices per square foot of each home together and then divide by the number of homes.
$230 + $225 + $200 + $190 + $180 = $1,025
$1,025/5 = $205
Using these calculations, you get an average price per square foot of $205 for these five homes. Remember this is only an average for a group of homes, so you should expect some houses in the same area to have a price per square foot above this number and other houses to have prices below this number.
However, this does give you an idea of what kind of pricing to expect in an area, which can be helpful for determining if a home is priced fairly for the neighborhood. This method typically wouldn’t be effective if you include houses from different areas in your samples since a home’s location often changes its price.
Housing costs vary nationwide
Calculating the average price per square foot of homes in an area is important, but it doesn’t give you the whole picture.
“I feel going solely on price per square foot is a big misconception,” says Mary Jo Santistevan, a top real estate agent in Phoenix, Arizona, who completes 11% more sales than the average Phoenix agent.
“Yes, it can be a piece of the pie, but there are so many other factors.”
Another factor to consider is location. You may have two houses with a similar square footage, but their price per square footage could vary drastically if they’re located in different ZIP codes or neighborhoods. This is especially true if you compare houses in different states and areas nationwide.
For example, coastal areas tend to have the highest median home values in the United States, but states within the Southern and Midwestern regions have the lowest median home values. Armed with this information, you can expect higher home prices in many areas of California, Hawaii, and Washington, compared to certain ZIP codes in Mississippi, Iowa, and Kansas.
This same principle applies to home prices in many large coastal cities and their upscale suburbs, compared to more rural areas. You might find a 3,000-square-foot home in the beautiful Ozarks region of Missouri for one price, but you’d expect a similar-sized home in the Berkeley suburb of San Francisco, California, to fetch a much higher price.
And even within the same city or metro area, moving a few blocks away or into another ZIP code from where you’re searching could offer more affordable options.
Leveraging cost per square foot for negotiations
Negotiations are an important part of the homebuying process because they can save you money on a house’s list price. For homes purchased in 2020, 56% were purchased below the asking price, which shows how effective negotiations can be.
If you want to use the average cost per square foot of homes in an area to help your negotiations, remember to only compare prices between comparable homes. It wouldn’t make sense to try and leverage the cost per square foot price of one home compared to another home that’s located in a different area.
But if you’re researching a home that has a seemingly higher price per square foot than similar houses in the same neighborhood, you might have a case for negotiating a lower price for the house.
However, you should also consider other factors about a property that can affect the price of a home. This could include the location of a home within a neighborhood, such as a more appealing lot, and how much land you get with the property. You also need to consider the age of the home, how many stories it has, and its finishes and fixtures, as well as any additional features.
“Let’s say you have two identical homes as far as the size is concerned. But one of them is decked out because the sellers spent $50,000 on a remodel last year and the other one is still from the 1990s,” says Santistevan.
“Then the one that’s remodeled is going to be a higher dollar per square foot.”
What’s inside the home, the land the home is on, what the roof is made out of, and more factors all help to give you an idea of what a home’s value is. If you can combine these factors with the price per square foot of a home, you’ll be more prepared to find what a fair value for a house is.
Cost per square foot for building a house
Building a house is appealing for many reasons, some of which include customizing a home to your liking and possibly saving money compared to buying an existing home. But it’s unlikely you’ll save money on a new build because the average cost to build a house is $293,343, with a range between $131,055 and $455,630 for most new homeowners.
Your cost per square foot for new construction is often between $100 and $200 per square foot, though this depends on what type of home you’re building. If you’re including custom and luxury options, your cost could rise to $500 or more per square foot.
Here’s a breakdown of how you can expect your costs to be divided for a new construction house:
- Labor: 30% to 60% of costs
- Materials: 30% to 50% of costs
- Administrative, design, and permits: 10% to 25% of costs
How price per square foot by ZIP code can work for you
Price per square foot is an important piece of the puzzle when determining the fair value of a home, but it doesn’t give you all the information you need. If you combine this information with other important factors, such as location and home features, you can get a clearer picture of if a home is competitively priced.
An experienced real estate agent can help you throughout the homebuying process, whether you have specific real estate questions or need general guidance in finding the home of your dreams. This includes assessing whether a home is fairly priced.
As you browse listings in different areas during your home search, remember to consider how a home in one area might not be comparable to a home in another, even if they have similar square footage and features. The location itself is a determining factor in any home’s value. If you want to learn more about a specific area, connect with a top agent who knows the lay of the land.
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