The Cost of Building a Home: How Does Price Per Square Foot Work

November 11, 2021

The Cost of Building a Home: How Does Price Per Square Foot Work - Feature Image

Price per square foot is a well-known measure of the value of a home, but how is that calculated? It’s more complicated than you might think – does the home with the lowest price per square foot offer the best value? Does a high price per square foot mean that a home is out of your price range? Can you estimate the cost of the home you want by simply multiplying the average price per square foot by the size of the house you want?

The answer to these questions might surprise you.

Let’s break it all down so that you have a better understanding of how price per square foot factors into the true cost of a home.

The Cost of Building a Home: How Does Price Per Square Foot Work - Floor Plan Image

How Is Price Per Square Foot Determined?

Broadly speaking, you can calculate the price per square foot of a home by dividing the total cost of the home by the number of square feet. This is easy to do, but it doesn’t give you the full picture. 

Many other factors can affect the price of the home, such as:

  • The floor plan. A larger property is likely to go for a higher price than a smaller one, and a home with a modern and desirable floor plan can also be worth more. 
  • Materials used in the construction. A home that uses higher-grade materials (such as granite countertops, hardwood floors, etc.) will have a higher price per square foot than a home of a similar size with lower-grade materials. 
  • Additional rooms. Certain extra rooms can add value to a home. For instance, a home with four bathrooms will cost more than a home that has two. Other extras such as a flex room that could be turned into an office, or a basement that’s divided into a legal suite rather than just used for storage can affect the price as well.
  • Location. All other things being equal, a home in Toronto or Vancouver will have a much higher price per square foot than a home in Edmonton. It’s also common to see slight fluctuations in this price from community to community, depending on how desirable it is and the lot it’s built on (more on this below).

Given this, you can see that certain homes are likely to have a higher cost per square foot because there’s a higher percentage of the home taken up by bathrooms and/or kitchens. Likewise, a home with a lot of high-end features is going to have a higher cost per square foot than one that uses basic materials.

The Cost of Building a Home: How Does Price Per Square Foot Work - Room Image

How Does The Price Per Square Foot Affect You?

The key benefit of knowing the price per square foot is that it gives you a good idea of what you can expect to pay for a home, and whether or not a particular home is a good deal. The key to this, though, is that you need to be looking at homes of similar quality.

For instance, if a home has a higher-than-average price per square foot for homes of a similar size, you should look into why. Perhaps it has one or more additional features, such as a spice kitchen or upgraded finishes. If the home has a lower-than-average price per square foot, it could be a red flag that there’s something wrong and the seller is looking to get rid of it quickly.

When Should You Be Careful Of Using Price Per Square Foot?

When we’re talking about the price per square foot, we’re talking about averages. You want to know how one home compares to others, but not all homes fit the average. Outliers can significantly impact the overall result.

At the time of writing, the average price per square foot in Edmonton is around $282. However, that figure includes one home that’s only $17 per square foot and one home that’s $3,092 per square foot – a huge range!

Additionally, you need to be careful when talking about new homes and the average price per square foot. If you’re using this figure to calculate the cost of your home, you could severely underestimate the cost of the home you want. An example of this would be if you were working with a builder who typically builds large family homes that are over 2,500 square feet.

As we noted before, the higher the square footage, the lower the price per square foot is going to be. If you wanted to use this builder to build a home that’s only 1,200 square feet, your home is likely to be much more on a per square footage basis. The difference in cost could be tens of thousands of dollars.

At Sterling Homes, we are transparent, taking the guesswork out of it. We make it clear on each of our home listing pages what the price per square foot is, making it easy to compare with other homes on the market. 

The Cost of Building a Home: How Does Price Per Square Foot Work - Website Screenshot Image

Does The Lot Affect The Price Per Square Foot Of A Home?

Another factor to consider is the lot on which the home is built. Price per square foot is generally based on the number of livable square feet of the home, and so doesn’t account for yard space, garages, patios and other extra features.

So for example, a 2,500 square foot home which has a 500 square foot yard and a garage might have the same price per square foot as a similar 2,500 square foot home that has a 100 square foot yard and no garage, even though the first example would have more value.

The Cost of Building a Home: How Does Price Per Square Foot Work - Resale Image

Does The Price Per Square Foot Of A Home Affect The Resale Value?

When it comes to resale value, people generally want to buy homes that fit in with the neighbourhood. This means you wouldn’t want to build a home with a lot of high-end materials in a neighbourhood where buyers are more cost-conscious. You won’t necessarily get that money back when you sell the home.

At Sterling, we’re dedicated to helping our buyers build homes that are “just right”. We make sure to include all of the great features that buyers want, all while keeping our home designs comparable in style and price to others nearby.

Sterling Homes aims to have the best price per square foot in all size bands and we’re always focused on providing our customers with value. We want you to move into a home with equity to spare so you’ll always be able to get more out of your home when it’s time to sell. Talk to one of our Area Managers to see how we can help you today.

Originally posted February 4, 2021; updated November 11, 2021

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