What is Dollar per Square Foot?

For residential sales, often the dollar per square foot calculation is often overlooked. It is overlooked because historical sales prices are used over the dollar per square foot metric. In this article we talk about how looking at the dollar per square foot of a house could save you money by providing you an additional metric to value your house, whether you are purchasing or selling.

Example of Dollar Per Square Foot

As the name suggests, dollar per square foot is the cost of a house for a single square foot of that space. For example, if there is a 1000 square foot space and you pay $200,000 for it, the dollar per square foot is $200/sqft. Dollar per square foot can also be written as $/sqft, and I’ll continue to refer to it in its shorter form.

Dollar per Square Foot as a Valuable Metric

So what makes this metric so valuable? Like most metrics, it helps you make an apples to apples comparison. Most homes are different from each other, even if they are selling nearby the home you want to buy or sell. So how do you draw conclusions from things that are different from each other?

Appraisers and Realtors have mastered the art of valuation, so there’s no shortage of professional resources available to make the adjustments necessary between homes. However, when you are presented with data, it’s important that you look at the $/sqft for your own understanding to see how much you are paying or selling per square foot.

For example, let us say you are selling your home and 2 other homes sold nearby within the last 3 months. One home is larger than yours while another is smaller than yours. Can you take the average of the two sales prices and claim that as your list price, all things held equal? That would be one approach, but another approach would be to see their $/sqft.

Value Judgments in Dollar per Square Foot Metrics

When you see the $/sqft, you can make value judgments. You can say “OK, this smaller house sold at a high $/sqft than the rest. I wonder what features make it sell for that much and I wonder if the location had something to do with it. I wonder how my house compares to it in features and location.” When you look at how much a space costs at a per square foot level, your ability to brainstorm about your house improves and you can get new insights that might not have been available previously.

Where to Find Dollar per Square Foot

Typically you’ll find out your $/sqft when you take a listing from the Realtor or before you purchase a house, although some Realtors do not make the $/sqft the highlight of the presentation. If you ask about it, you can get it and then you can start making your comparisons until you are satisfied with your decision. When you make a better decision, chances are you will save money or make money because you had more information available to you.