How to Determine Price Per Square Foot by Zip Code?

A large part of real estate is confirming that a house is fairly priced. Sellers want to list their homes at fair levels that will attract buyers and sell quickly. Buyers want to confirm that a potential property has a good price – and will likely appraise within a reasonable level during the mortgage application process. One metric to use when evaluating homes is the square foot price. 

Tracking the square foot price allows you to compare multiple homes against each other even if they are different sizes. It is a useful tool for gauging how a house is listed. Looking at the average price per square foot in specific neighborhoods can help you learn about the houses for sale. You can even use this tool to compare price points across different ZIP codes or regions where you want to buy. 

However, many people don’t know how to determine price per square foot. You can do this process manually or use various tools and resources at your disposal. Use this guide to hone your calculations and better understand looking at the square footage of a home is so valuable.

What is Price Per Square Foot?

The price per square foot is used to provide an objective number for the fair market value of the home. It is calculated by dividing the current listing price – or value determined by a comparative market analysis – the the square footage of a property. 

For example, a house in one city is listed for $500,000 at 2,000 square feet. The price per square foot is $250. In a more affordable city, the same 2,000-square-foot house might be listed for $300,000. In this case, the price per square foot is only $150. 

While comparing the price per square foot across homes is a valuable metric when deciding what towns or neighborhoods you want to live in, this metric can also be used to compare properties that you are considering buying. Two very similar houses might have significantly different price per square foot values, even though they are near each other.

By looking at this metric, you may decide to research why their price levels are so different. If they are in the same condition, the more affordable house may be the better deal. 

Calculating price per square foot is a helpful way to understand the listing price, but it is not the only factor in determining the value of a property. Most buyers take a multi-view approach to understanding a listing price to decide whether what the seller is asking is fair or not.

How to Determine Price Per Square Foot by ZIP Code

Both buyers and sellers will need to understand the price per square foot for specific zip codes. Home values vary across towns, within zip codes, and even on the same street. However, calculating the price per square foot by zip code is usually a good place to start.

This can give you an idea of what areas in a particular city you can afford once you start looking to buy. If you are a seller, this can tell you about home values in your area and how your property compares. Here’s how to calculate price per square foot in your area.  

Research Recent Sales in Your Zip Code

Start by pulling the recent home sales in your area. Focus on the final sales price, not the listing price. If you enjoy doing math and following regional trends, you can compare listing prices to final sales prices to learn what the market is like in your area. Short sales windows and offers at-asking reflect a hot seller’s market. Longer sales windows and homes with multiple price drops reflect a cooler market that could be more advantageous to buyers. 

Be careful when choosing the timeframe of recent sales that you want to compare. Real estate market conditions are fickle. They can change within a few weeks, raising or lowering your property values. Seasonal trends can also change the average fair market value in your area. If you want to calculate the average price per square foot in your area, use data within the last 30 days. If enough homes are selling in your area, you may be able to pull data from the last 14 days.  

Compile a list of homes that you will use as your dataset to calculate price per square foot in your target area.

Gather Local Data on Square Footage

Tools like Zillow can help you find the purchase price of homes in your area. They can also help you find the square footage of these properties. However, you may want to look at other sources to guide your research. The local tax collector or government property appraiser’s office can provide insight into the total square footage of a property. These offices might also provide information on the property value of specific homes in your area. 

Accurate data is essential when conducting a square foot calculation. If your sales prices or square foot reports are off, you will have inaccurate numbers. This could cause you to over or under-list your home if you are a seller or potentially overpay if you are a buyer. 

Your real estate agent should be able to help with the data collection process. They can pull the data you need or draft a price per square foot by zip code report based on recent home sales. 

Identify Comparable Homes With Similar Features   

The next step is to eliminate outliers while grouping similar homes together. For example, if all of the homes on your list sell for above $400,000 but a house with smoke and water damage from a fire sold at auction for $100,000, you need to remove that outlier. The sale price is not indicative of the average home prices in your area. 

After you remove any outliers, you can sort homes into groups. You may decide to group them by condition (new builds, updated homes, average homes, and properties that need significant repairs) or by extra features like swimming pools and multi-car garages. Some buyers or sellers also consider the lot size of the home.   

From there, you can calculate the price per square foot of these homes. The groups will give you a big-picture view of the median price of a house in your area while individual groups can tell you how differing factors can affect home prices.

Look at the Average Price per Square Foot

Calculating the individual price per square foot of recent properties will give you a large set of data for housing costs in your zip code. However, you will want to get the average of these final sales prices to understand the current price per square foot cost for homes in your area. 

For example, if you have five comparable properties in your area that have price-per-square-foot sales of $200, $185, $210, $175, and $220, then your average price per square foot in your area is $198.  

The final step is to analyze your data. If you have 10 comparable properties, you may sort the houses that have in-ground swimming pools versus those that do not. Your research may find that a house with a pool has an average price per square foot of $250, while a house without has a price per square foot of $205. You also may run similar calculations for new-build homes versus existing houses to see how their real estate prices differ. 

Remember that correlation does not equal causation. One factor alone may not raise or lower property values. There will likely be many reasons why one home’s price per square foot is higher than others. While your calculations can provide insight into the average price of homes in the area, be careful when making assumptions about single factors.   

Sample Calculation for Square Foot Price

Here is a clear example that follows the steps above and highlights the value of ensuring your data is accurate and clear before starting your price-per-square-foot calculations. You can see how small changes in home sale prices can have a big impact on the region. 

• A home seller wants to understand their property’s fair market value, so they pull all of the home sales in their zip code for the last 30 days. There have been 20 homes sold. 
• They eliminate outliers, including three foreclosed homes that sold for less than $100,000 and a nearby mansion that sold for more than $2 million. The majority of homes in the region sold within a range of $300,000 and $500,000. This brings the dataset down to 16 homes. 
• The seller then runs the price per square foot calculations. They can further eliminate four condos, which have different market values in that particular area, and two more houses that are in poor condition. This brings their data set to 10 homes. 
• The seller can take the average of the 10 homes that fall within the median home price range for the zip code. This gives them the price per square foot for the area. 

If the seller desires, they can focus on homes that are similarly sized and have matching features as their own – if the data set is big enough. They can also focus on their particular neighborhood.  

With the price per square footage calculation in hand, the seller can then estimate their own listing price. If a 2,000-square-foot house in the zip code (in good condition) sells for $210 per square foot on average, then the property’s fair market value would be around $420,000.

Factors That Influence Price Per Square Foot

As you run the square foot calculator in your area, spend time actually looking at the recently sold properties. Review photos of the houses to evaluate their condition, look at metrics like the number of bedrooms and amenities, and consider the location of each house.

Even changes in location – like proximity to a main road – can affect the price per square foot. These evaluations require both quantitive and qualitative insides to understand how the buyers and sellers reached their final sales prices. 

Here are a few factors that affect price-per-square-foot calculations, which can make comparing properties more difficult. 

Location

Homes in desirable areas or regions typically have higher prices per square foot. However, location goes well beyond zip codes and neighborhoods. A few location factors that increase or decrease values include: 

• Proximity to schools and location within good districts. 
• Distance from major roads or disruptive infrastructure like railroad lines and airports.
• The value and condition of homes that surround the property. 
• Nearby amenities like dog parks, playgrounds, grocery stores, and entertainment. 

A home may be in a desirable zip code but fall just out of range for a good school district. Two homes might be exactly the same, but one is next to a loud interstate. Location can have a big impact on price per square foot values.

Condition

Homes in better condition tend to have higher prices. This is because there is less work for buyers to do once they move in. One survey found 70% of buyers want a turnkey house that doesn’t require a lot of extra repairs. 

Condition doesn’t just relate to essential repairs, it can also relate to aging design elements. Old, dirty carpet that needs to be replaced or a kitchen that hasn’t been renovated since the 1980s can bring down perceived values.

If you are unsure why a house sold for a low price per square foot rate, look at the photos. The property may be worn or need essential repairs that caused the price to drop. 

Age

Older homes may have a lower price per square foot than newer homes. However, this usually is a reflection of the condition of the property. An older home may need essential replacements – like updated insulation, infrastructure repairs, or a new roof – or code upgrades like updated electrical wiring. A recent home will be built up to modern codes and have all new elements. 

However, there isn’t a direct correlation between age and price per square foot value. Some historic homes may sell for more because of their unique designs. Well-maintained old homes may pull in high sales prices, especially in desirable neighborhoods.

Poorly built new construction properties may sell for less if they have several known issues. Multiple factors contribute to the median price of a house and age is just one of them.

Lot Size

It’s important to look beyond the physical structure for sale to understand its price per square foot. Larger lot sizes may result in a higher price per square foot values for the home. This is because some buyers want large yards for their kids and pets to play in or simply value privacy.

Extra land is seen as a value-add to a house, making bigger lots more desirable. If two extremely similar houses have different price per square foot values, look at the lot size and location. 

Property Amenities

Look beyond the square footage of a home and consider the amenities that comprise the structure. Homes with additional amenities like pools, garages, or finished basements tend to have higher price per square foot values. This is because buyers are willing to pay more for these assets.

For example, a closed garage is often considered safer and more convenient for buyers than an open carport. Even though both amenities take up the same amount of space, the garage might increase the home’s price per square foot.

Market Trends

Market trends are incredibly fickle and can impact your price-per-square-foot calculations. This is why it is so important to look at small sales windows that are less than 30 days out and datasets within specific zip codes and neighborhoods.

Macroeconomic trends like changes in interest rates or buyer perceptions can change the median price of your home – even if you do nothing to it. 

Know that your square footage calculations can vary widely throughout the year. Do not get caught up in a specific number because that data could be outdated within a few weeks.

Talk to Your Real Estate Agent About Square Foot Calculations

If you want to review data insights into local trends, ask your Realtor for help. They can pull a list of median price estimates in your area along with price per square foot data for recently sold homes.

Your Realtor has access to more tools and resources than you do – and they also regularly pull these reports. Your agent can find data on home prices and square footage faster than most average homeowners. Let them do the work for you. 

To find a Realtor who can help you sell your residential property or guide you through the buying process, turn to FastExpert. Read profiles of local agents and find good fits for your needs. You can use this resource as a jumping-off point to hire an agent you can trust. FastExpert has thousands of agents that are curated to meet your needs. Hiring a Realtor can be the easiest part of the process. Try FastExpert today and get a fair purchase price for your home.