What Is The Cost Per Square Foot And What Does It Mean?

Posted: Aug 21 2018 News

Part of the journey of finding a new home includes researching all of your options - from home builders to home type, to location and amenities. Chances are, the discussion of "cost per square foot" has popped up more than once. You might be sitting there asking yourself "what is cost per square foot and how does it relate to the value of my new home?
What exactly is cost per square foot?

Two  things that all houses have in common are a price and size. By dividing the price of the house by the square footage, you'll get the price per square foot. For example, say you are looking at a $2000 sq. ft home that is listed for $285,000. The price per sq. ft of the home would be $142.50.

The cost per square foot calculation is meant to break down the cost of the home into an easy to understand metric that simply should help you compare nearby homes in a community. For home builders, it helps them determine the right amount of parts and materials to order from vendors in order to help calculate the overall cost of building a home.

So why is it important?

As you're shopping around Edmonton and its many communities, the price per square foot metric can be a quick and easy way to get an idea of how much a home costs or how much the builder would charge, depending on the size of the home. One thing to keep in mind is that this number can vary greatly between location, lot size, bed / bath count size, home size, etc. Now, is it really an accurate way of determining a home's value? Not necessarily.

Imagine buying a new car. What do you look for? Maybe you want all-wheel drive, a GPS console and built-in smart technology. If we follow the price per square foot theory, a Hyundai Sonata would cost more than a McLaren F1.

The point is, different homes (like different cars)  will have a very different price per sq. ft. However, similar houses do tend to have similar price per sq. ft - especially those that are comparable across similar properties.

Does size matter?

Larger houses may have lower costs per sq. ft compared to smaller houses which tend to have a higher cost per sq. ft. Let's look at the example we had earlier.

A $2000 sq. ft home that costs $285,000 had a price per sq. ft of 142.50. Now, let's compare a smaller home at 1500 sq. ft at a price of $220,000. The price per sq. ft is $146.67.

Why does the smaller home at a lesser price have a higher price per square foot? Because the base costs of a larger home are spread out over a larger area.

But is larger always better?

Again, not necessarily.One aspect to consider is the floor plan design. Two houses with the same square footage are more than likely to feel very different depending on the layout. A home with an open concept main could feel larger compared to a home with a closed floor plan design even though both offer the same square footage. Ultimately, it's not the size of the home, rather, it's about the value of the home and what you do with that space.

What else should I consider?

There's plenty of decisions that need to be made while you're selecting a new home. Our suggestion would be to plan out what you look for in a home and ask as many questions as you need to when discussing your options with a home builder. Real home value is measured through unique features like layout, finishes, customization and location - but price per square foot is a simple, but useful calculation that can be used to compare similar properties. 

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