Using Price Per Square Foot to Figure Home Values

Price per square foot might not tell you what you think it does

Image shows a bird-eye-view of a few homes on a property. Text reads: "Calculating the average price per square foot. Property A: $200,000/1,000 sq. ft. = $200 per sq. ft. Property B: $180,000/1,200 sq. ft. = $150 per sq. ft. Property C: $585,000/2,100 sq. ft. = $278 per sq. ft. // $628 per sq. ft. / 3 = $209 per sq. ft. "
Photo:

The Balance / Jo Zixuan Zhou

Square foot pricing can be a shifty concept that doesn't always mean what you might think it does. You might be looking at a 1,500-square-foot home that's listed for $150,000. The price per square foot would be $100. The home next door is 2,000 square feet, and it's listed at $185,000. The price per square foot of the larger home is $92.50.

Which is a better buy? That's actually a trick question because smaller square-foot homes command higher per-square-foot costs. Larger square-foot homes command lower per-square-foot prices. It can be a little like comparing apples and oranges.

Average Price Per Square Foot

You can arrive at the "average" per-square-foot cost of a home by adding the square-foot cost of each home that's sold in a given area then dividing that by the number of homes that sold.

For example, three homes sold on Broadway for $200,000 each. Property A was 1,000 square feet, while Properties B and C were 1,200 square feet. Two more homes sold a block away. Property D was $180,000 and 1,200 square feet, while Property E was $585,000 and 2,100 square feet.

There's a big discrepancy between homes that are 1,000 square feet and homes that are more than twice that size, and that's why averages are calculated.

  • Property A sold at $200 per square foot.
  • Property B sold at $167 per square foot.
  • Property C sold at $167 per square foot.
  • Property D sold at $150 per square foot.
  • Property E sold at $278 per square foot.

Therefore, the average per square foot cost is about $192—the total divided by the five properties.

Median Price Per Square Foot

The median price is the middle price point—half the homes sold above the median and half sold below the median. The median price is often used as a more accurate measure of value, although it's better than average pricing, especially when there are extremes.

It isn't a clear picture either, however. In the example above, the median price would be $167 compared to the average of $192. Half the homes sold for more than $167.

Why Average Price Is Important

Per-square-foot costs are used a great deal in new construction. The square-foot cost to rebuild your home is often likely to be higher than the cost to buy if the home is older. This comparison can be based on averages because two-by-fours, drywall, and other construction materials cost the same per square foot from one house to the next.

It's All About Trends

It's not wise to base the purchase price of a home you're buying on either median or average per-square-foot costs because each home is unique. Instead, think of these numbers as indicative of overall trends. Prices per square foot can vary based on location, condition, improvements, updates, lot sizes, and whether it's a one-story or multi-level home, among other factors.

Note

You can determine whether values are rising or falling if you compare the average price per square foot for the past 12 months, but much of that depends on the average size of the home.

Keep It in Perspective

The average price per square foot will show you a trend as long as all homes are similar in square footage, but an average won't help much at all if some homes are larger than others.

The answer to whether it's better to buy a home that's smaller at a higher per-square-foot cost, or a larger home at a lesser per-square-foot cost, depends on the typical average square footage of homes in that area. Many buyers want to buy a larger home, but it might not be the best financial choice if that larger home is a white elephant.

The Bottom Line

You can't take the average price per square foot and multiply it times the square footage of the home you're thinking about buying. It doesn't work that way. Appraisers don't rely on square-foot costs. The pricing per square foot simply gives you average or median ranges. It doesn't accurately compute the value in most cases.

Frequently Asked Questions (FAQs)

What is the average price per square foot for a home in the U.S.?

As of September 2021, the median price per square foot for a home in the U.S. was about $123. But, that can vary widely based on where you live and other variables. For instance, on the low end, you could pay as little as $24 per square foot in Detroit. On the expensive end, in San Francisco, you could pay $810.

How do I find the average price per square foot for a home in my neighborhood?

Local realtors and real estate agents will know the most about an area. You may be able to look up some broad average figures on their websites, but sitting down with a realtor can help you fully understand the average price per square foot that you should expect to see in your search.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Sarah Jullion Real Estate. "The Cost Per Square Foot Factor."

  2. Turner & Son Homes. "Why Do Bigger Houses Have a Lower Cost Per Square Foot?"

  3. HomeLight. "Why Average Price Per Square Foot Can Only Tell You So Much About a Home."

  4. National Association of REALTORS®. "What Is the Average Price Per Square Foot for a Home—And Why Does It Matter?"

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