When Does Price per Square Foot Matter?

Price per square foot – when does it matter in real estate?

Understanding Price Per Square Foot in Real Estate

I’m always amazed when I chat with my friends who are real estate agents and brokers in other states. Many of them have never measured a house because square footage isn’t a required field in their multiple listing service (MLS). In fact, in some places, square footage doesn’t appear in MLS listings at all.

So, how did buyers and sellers become so focused on square footage as a pricing measure? Probably because the math is simple: Price ÷ square feet = price per square foot (PPSF). Even a 5th grader can do that math!

But what’s the big deal?

Appraisers don’t value residential real estate based solely on PPSF. Any appraiser will tell you they are looking for comparable sales in similar locations and determine market value based on those sold prices. Do they adjust for differences in square footage? Absolutely, but not as much as you might think.

If your neighbor’s house has 100 square feet less than yours and sold for $200 per square foot, an appraiser won’t just add $20,000 to your home valuation. The difference in appraised value will be minimal, making PPSF nearly useless when deciding on a listing or offer price.

PPSF doesn’t consider the details of a home. Does it have upgraded finishes? A more desirable lot? Is it newer than other homes in the neighborhood? Square footage doesn’t account for any of these factors.

So, is PPSF ever useful?

Sometimes, yes. If you’re buying in a neighborhood of new tract homes with similar finishes or a large condo development with many comparable units, then PPSF might be considered by an appraiser or your agent.

Otherwise, it’s a detail that too many people get caught up in, often derailing their home purchase or sale by using PPSF to sway their determination of value.