When buying a home, most people know they want a nice backyard, great views, or new appliances, but they typically don’t give much thought to the price per square foot. While it’s often overlooked, there are some important reasons to pay attention to the numbers when looking to purchase a home.
The average price per square foot is a helpful guideline for home buyers to get an idea on whether a home in a certain area might be overpriced. Here are some helpful tips on square footage when looking to buy a home.
WHAT IS PRICE PER SQUARE FOOT?
Simply put, the price per square foot is the cost of a home divided by the total square footage. This number doesn’t really mean anything until it’s compared to other homes in the area. It ultimately provides a snapshot of the market area and lets you know if a house is reasonably priced.
Most MLS listings include the price per square foot, but it can also be obtained from the county tax record. Typically, price per square foot decreases as the square footage of a property increases and helps give homeowners an idea of the value for similar property listings.
HOW TO CALCULATE PRICE PER SQUARE FOOT
So what is the magical mathematical equation for calculating price per square foot?
Price of home / square footage = Average price per square foot
Take the total price of the home and divide it by the square footage of the house. If you’re looking at two similar homes in a neighborhood, this equation can give you an idea of the value of the homes you’re comparing.
Pull out your calculators, and let's try an example! Let’s say the home price is $7,750,000. The square footage is 6,825sqft. So the average price per square foot is $1,136.
$7,750,000 / 6,825sqft = $1,135.53.
Another house in the neighborhood is listed at $7,500,000 and the square footage is 6,400sqft.
$7,500,000 / 6,400sqft - $1,171.87.
The second house might be cheaper, but it’s not actually a better deal because it is more money per square foot. Of course you have to consider the amenities of the property, but this is a good starting guideline to determine the value of the house.
WHY PRICE PER SQUARE FOOT CAN VARY
Square footage can be a tricky concept when looking at buying a home. The reality is, each home is unique when it comes to the price per square foot because not all houses are the same size. Currently, there is no national standard for measuring the square footage of a home, hence where the discrepancies lie.
One of the biggest reasons real estate agents warn homebuyers not to solely rely on average price per square foot is that one seller might include different parts of the properties that another seller might not. If one seller includes the basement as “living space,” their price per square foot will go down because there’s more square footage for the same price. It’ll make the home seem like a better deal, even though it’s not really any different than the home across the street.
Price per square foot will also vary depending on location. Different states have different real estate markets. Hot luxury housing markets—like the Big Island—will have a higher price per square foot compared to less desirable locations. Even high-end neighborhoods like the ‘Āinamalu in the Waikoloa Beach Resort will have a higher price per square foot compared to other neighborhoods. Price per square foot is designed to compare houses of a similar size in a similar market.
WHAT DO THE NUMBERS MEAN TO YOU
It’s important not to rely solely on the price per square foot of a home when buying. The numbers are just an overview to see trends in similar neighborhoods and what the real estate market looks like in a specific area. Price per square foot doesn’t tell you anything about the conditions or amenities of the home.
Take your time and consider multiple aspects when looking at homes. It’s always a good idea to work with an experienced real estate agent to help you better understand the market data. If you’re ready to buy, contact me to start the process of finding your dream home in Hawaii!
Aloha, and welcome to Hawaii.