Using the ‘Average Price Per Square Foot’ During Negotiations

Using the ‘Average Price Per Square Foot’ During Negotiations

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Price Per Square FootDuring the process of buying a home an important question to ask is how much the home is worth and how much will be paid for the home at close?  Many home buyers fail to think about the sale price of a home in terms of price per square foot. But this can be an important number to look at to make sure a buyer is not paying too much for a home in an area where the houses are not worth that much on average.

Finding Price Per Square Foot

The price per square foot for the home is almost always listed on the website that is advertising the home.  If it is an open house most agents will provide a document with information on the home. This is one piece of information that is typically included.  

Knowing the price per square foot by itself does not let the home buyer know much information. However, using it to compare to other homes is when it becomes important.

After learning the price per square foot of a home look at the comparable homes in the neighborhood.  Finding other homes for sale or that have recently sold will give the home buyer the ability to compare these prices.  Many real estate websites will also show the median asking prices versus selling prices of homes in the area for comparison.

Average versus Median Price

There is a difference between the average price and median price.  The average price is calculated using a mathematical formula. It is the sum of all of the sales in the area divided by how many sales have taken place.  This price is often altered according to how many low or higher home values are included that are not typical for the area.

Using the median price is more accurate.  To calculate the median price the low and high values of home are separated before calculating.  With all of the values set in order, the median price would be the home that is in the middle of the lowest and highest homes for sale.

Currently, the median price for square foot across the United States is around one hundred and twenty-five dollars.  However, this is not a price to base any offers on. The median prices in an area can be vastly different than this depending on where the home is for sale and other real estate market factors.

Using This Information During a Sale

By seeing the median price per square foot in a certain neighborhood a home buyer can determine if their desired property is for sale at a bargain or if it is priced way over market value.  This information is important to remember while making an offer and during the negotiation process.

It can be a solid strategy to employ if wanting to ask for a lower price on the home.  If a home buyer knows there are other homes in the area that are truly comparable that are priced at a lower price they can provide this information during negotiations.  Homeowners are more likely to accept a lower price if they know a home buyer is not simply trying to lowball their offer.

However, a buyer does need to understand there is more to comparing houses than the price per square foot, number of bedrooms or bathrooms, and square footage of the home.  Each house may have its own problems or reasons to be priced differently. Factors like full renovations or needing major updates can skew these prices.  

Negotiating the price of a home is easier with the facts about other homes in the area.  If a home buyer knows that they can walk away and get a similar house for less they have more power during negotiations.  Or if they know what they are buying is a bargain they will know not to drag out the process for too long or risk losing out to a buyer who is willing to pay more.

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