This Number Can Make Comparing Home Costs Easier

Is a home priced fairly? Here's how you can compare.

When you're shopping for a house, it can be hard to tell whether a particular property is priced fairly. It can also be difficult to compare multiple properties, especially if they have varying sizes or features.

But, there's one number that can assist you with both of these issues. It's called price per square foot. Here's why knowing this number can make the process of shopping for a home easier.

What is price per square foot?

Price per square foot is a method of measuring the cost of a home by comparing the price you'd pay for the property to the amount of square footage it has.

For example, let's say you are comparing two different homes: a $200,000 house that's 2,000 square feet and a $200,000 house that's 1,000 square feet.

Although both homes cost the same when you look at total price, the price per square foot gives you a different picture. The 2,000 square foot house costs you $100 per square foot ($200,000 ÷ 2,000) while the 1,000 square foot house costs you $200 per square foot -- twice as much.

How can price per square foot help you compare home costs?

Price per square foot is one of the most helpful metrics when you shop for a property since no two houses are the same.

If you're looking at homes of different sizes, you can check the price per square foot to see which one comes at a lower total price for the amount of space that you get.

You can also use price per square foot to see if a house is a good deal or if it is overpriced. By looking up what other similar homes in the neighborhood are listed for or have sold for, you can use price per square foot to see whether the house you're interested in is priced higher or lower.

If the home you're looking at comes at a cost of $200 per square foot but the median price per square foot in the neighborhood is $150, that's a strong indicator the property is priced higher than it should be. You could potentially use this as leverage to make a lower offer, or you may decide to simply walk away and find a home that's selling at a cost closer to neighborhood averages.

Don't forget other factors when making your decision

Of course, price per square foot isn't a perfect representation of what a house is worth since the size of a house isn't the only thing that matters. A home with a larger lot, nicer view, or more upgrades may be worth more per square foot than an older one that is lacking these features. But if homes are otherwise generally similar, it's extremely useful.

And even when comparing different properties with unique characteristics, the price per square foot can still give you a starting point in evaluating whether each home is worth the discounted or premium price relative to average cost per square foot.

Most listings feature the price per square foot prominently, so it's easy to use this as a factor in making your home-buying choice. If a listing you're looking at doesn't give this information, do the simple calculation above to find out this metric on your own. This can help you make a more informed choice about what the property is worth before applying for a mortgage and making an offer on a home.