Price Per Square Foot: Meaning, Limitations, Example

Price per square foot is a common metric used in real estate to measure the cost of a property relative to its size. It’s calculated by dividing the property’s total price by its total square footage. For example, if a home is listed for £300,000 and has 1,500 square feet, the price per square foot is £200. This number helps buyers, investors, and agents compare properties of different sizes in the same market or neighborhood.

It’s especially useful when evaluating whether a home is overpriced or underpriced compared to similar listings. While it doesn’t capture every detail of a property’s value, it offers a quick, standardized way to gauge cost efficiency.

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How Price Per Square Foot Is Used

In practice, buyers often use this figure to compare multiple properties quickly. If one flat in a London borough is listed at £900 per square foot while another nearby is at £700, that difference could indicate better value—or hidden issues. Investors rely on it to identify market trends and determine the profitability of a potential flip or rental. Developers and appraisers use it when pricing units in new developments or estimating value based on comparable sales.

It also plays a role in property valuation, especially in areas where homes are relatively similar in layout and condition. In such cases, a clear per-square-foot benchmark helps establish fair market pricing and guides negotiation.

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Limitations of Price Per Square Foot

Despite its usefulness, price per square foot has important limitations. First, it doesn’t reflect the quality of the space. Two homes might be the same size, but if one is newly renovated and the other is outdated, their values shouldn’t be equal. It also ignores factors like layout, ceiling height, view, lot size, and outdoor space. In multifamily or luxury properties, where amenities vary widely, this metric becomes even less reliable.

Additionally, square footage measurements themselves aren’t always consistent. Some listings include garages or basements, others don’t. This lack of standardization can skew the data and lead to misleading comparisons.

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Real-World Example

Imagine you’re comparing two flats in the same building. One is listed at £480,000 and is 600 square feet, making it £800 per square foot. The other is £510,000 and 700 square feet, or about £728 per square foot. The second unit appears to offer better value but only if the layouts and conditions are comparable. If the cheaper-per-foot unit has less natural light or a worse view, the first one may still be more desirable. Price per square foot tells part of the story, not the whole.

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Why It Still Matters

Even with its flaws, price per square foot remains a core reference point in residential and commercial real estate. It helps investors calculate potential returns, helps appraisers support their conclusions, and gives buyers a tangible way to evaluate cost versus size. When used alongside more detailed analysis—like condition, comps, and rental potential it becomes a powerful tool for decision-making.

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Final Thoughts

Price per square foot is like a speedometer: useful for a quick read, but not the full dashboard. It’s a starting point, not a conclusion. Whether you’re buying a home, investing in property, or analyzing the market, this metric can help filter options and frame expectations. Just remember it’s one number in a much bigger equation. Always dig deeper.