What is price per square foot?
The price per square foot is the amount of money a buyer will pay for every square foot in a house, according to Property Club. This numerical number is calculated by dividing the sale price of the house with the total number of square feet.
Example of price per square foot
The price per square feet is the ratio between the sale price and the number of square feet in the house. Let assume that you are buying a 2,750 sq.ft. house for $275,000. To know how much you are paying per square foot, you will divide the $275,000 by 2,750.
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How to calculate the average price per square foot?
Let’s say that you want to buy multiple houses in a particular location. How would you know the average price per square foot on your purchase?
Your average cost in this case will be the average of all price per square feet. Please, refer to the example below, assuming that you are buying three houses.
First house: $200,000/Sq. Ft. with 1,500 Sq. Ft———–> $/Sq. Ft = $133.33/Sq.Ft.
Second house: $225,000/Sq. Ft. with 1,750 Sq. Ft ——-> $/Sq. Ft = $128.57/Sq.Ft.
Third house: $300,000/Sq. Ft. with 2,300 Sq. Ft ———> $/Sq. Ft = $130.43/Sq.Ft.
What is the average cost?
Step 1: Calculate the average per square foot for each house. Using the same strategy from the example above, we computed the following prices: $133.33/Sq.Ft. for house 1, $128.57/Sq.Ft for house 2, and $130.43/Sq.Ft. for house 3.
Step 2: Calculate the sum of all price per square foot: Sum = $(133.33+128.57+130.43)= $392.33
Step 3: Calculate the number of houses you are buying. In our example we have 3
Step 4: Calculate the average price per square foot by dividing results from step 2 with the number in step 3.
If you choose to buy these three houses, you will be spending $130.78/sq.ft on average.
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Why is the price per square foot important?
The price per square foot is very important in real estate as it helps home buyers and sellers to compare how much they are spending pr charging on the house compared to a similar house recently sold in the area. If a similar house in your location was sold for $98 per square foot, it would not make sense to list yours for $200 per square foot.
The price per square foot can also be used to estimate how much an investor is spending on a house compared to the average cost per square foot in the entire location.
For example, let’s assume that you are buying a single-family home for 145 $/Sq. Ft. and the average $/Sq. Ft in that zip code is 100 $/Sq. Ft. In this case, you will be paying $45/Sq. Ft above the average price in the area. The house must be really good compared to others in the area or you are being ripped off.
