Are you considering selling your home or want to know what price it could sell for? How is a home's price determined anyway? Or what if you're looking to purchase a new home. How do you know if the asking price is reasonable? One of the tools agents use most often to determine a fair listing or purchase price is price per square foot. Using this metric can give you a rough idea if the price you're considering listing for is reasonable, or if a property you're looking to buy is priced appropriately. However, it is important to understand the benefits and limitations of using price per square foot to ensure you aren't leaving money on the table as a seller or paying too much as a buyer.
When looking at price per square foot, there are many factors that go into determining it. In addition to looking at data of recently sold properties nearby, the price per square foot takes into consideration the home's age and condition, location, updates and upgrades, and other items that buyers in that area are willing to pay a premium for. In pricing a home, the seller's agent will first look for comparable homes nearby that have recently sold to determine the average price per square foot of the sold properties. The agent will then look at the considerations listed above to see if there is anything that would justify an increase or reduction in price per square foot. The agent will then make an educated determination based on all of these factors to ascertain what a buyer would be willing to pay for the home. For example, after looking at comparable properties, the average price per square foot is $250/sq ft, and the agent determines the listing home to be comparable at that price, they would take the property's square footage (for example 1,800 sq ft) and multiply by $250. In this example, the sales price would be (1,800 x $250) $450,000. Also important to note: the square footage of a home is typically obtained from the tax assessor in the county where the home resides.
Are there any other things to consider regarding price per square foot?
There are a few other important things to consider when looking at price per square foot. For one, the price per square foot generally only considers finished or heated living spaces in the home. Other areas that could be converted into living spaces at a later date are typically not included, such as a detached garage, storage shed, or basement.
Another factor is lot size. Land values are included in the home's total value, however, a smaller lot closer to the city could have the same or even a higher value compared to a lot farther away from the city. Likewise, say that there is a home in the same neighborhood that is comparable in every way, except one has a larger lot. The property with a larger lot will likely have a higher price per square foot to account for the extra acreage.
Price per square foot can also be helpful if you are considering a home where you would want to do renovations. If you determine the cost to finish a basement or renovate a kitchen, you can take the price per square foot of that project and compare it to the price per square foot of the home overall to see if there is a positive return on investment (or not).
Final Thoughts
Home prices can vary widely around the country, and also around the Austin area. In addition, every home and situation is unique. If you would like help determining your home's price per square foot, don't hesitate to reach out.
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