If you’re in the market for a new residence, you probably already have an idea of your price range. While it's important to know which houses are within that dollar limit, it can also be very helpful to take a look at how much the properties in your search cost per square foot. This extra number can give you some essential insights in your purchase process.
The asking price versus the price-per-square-foot measurement analysis is kind of like comparing your mortgage interest rate to the APR. The interest rate is simply how much you will be charged for borrowing money to buy a home. The APR – annual percentage rate – tells you more about the total cost of the mortgage. It takes into account all the extra fees you pay, including closing costs, mortgage insurance, homeowner’s insurance, etc. By looking at the APR you’ll have a more accurate picture of how expensive your home loan is.
Similarly, a listing price is just a number. For the price-per-square-foot, you take the selling price, divide it by how many square feet are in the house. This makes it really easy to compare the home to others in the neighborhood.
Prices obviously vary widely from region to region. For example, 2020 figures say that the median price-per-square-foot for a U.S. home is $123. However, for the city of Detroit that number is only $24 while in San Francisco it is $810.
(Quick brush-up on median vs. average – an average is the sum of all house prices in an area divided by how the total number of houses. The median is the exact middle, half of all homes are more expensive, and half are less expensive.)
More desirable neighborhoods are going to have higher median price-per-square-foot prices, of course, but that measure can tell you how a property is priced within a particular area as well. Most real estate website will break down selling prices by square foot as well as give you the median for each city or region. If you are looking at properties and you find one you like that is say, $150 per square foot but after searching nearby listings, you find that the neighborhood median price-per-square-foot is only $135, it may mean the house is overpriced for its area. Of course, it might also mean that the home has been updated with valuable features or that it has more land than bordering domiciles. At the very least, knowing the difference in prices per square foot will help you know you need to find out more about that pricier abode before placing an offer.
On the flip side, once you know the median square foot price in your area of choice, if you find a listing that is below that number you might have stumbled on a great deal. Again, more research is required. It may be underpriced because the seller is extra motivated, or it could be because there are major repairs to be done.
While the total selling price is a key element in homebuying, taking note of the price-per-square-foot of properties will make sure you are paying the right amount for a house in your particular neighborhood and it may even alert you to some of the best bargains on the market.
Before you start shopping for a home, be sure to let us know so that we can help you get Pre-Approved for your Mortgage. Give us a call today at 801-221-9400.