The Myth of Price Per Square Foot (And When It’s Useful)
If you’ve owned a home for more than five minutes, you’ve heard this one: “Homes in this neighborhood sell for $X per square foot.”
It sounds clean. It feels scientific. And it’s one of the fastest ways to misprice a property—especially in Denver, where one block, one view, one layout quirk, or one basement can blow up the math.
Price per square foot (PPSF) isn’t worthless. It’s just regularly abused. Here’s what it is, why it breaks, and the few times it’s actually helpful.
Why price per square foot is a myth (most of the time)
1) Square footage isn’t equally valuable across homes.
A 2,200 sf home with a 600 sf unfinished basement is not the same as a 2,200 sf home that’s all above grade with an efficient layout. PPSF treats every square foot like it’s the same product. It isn’t.
2) The first 1,000–1,500 sf are usually the most valuable.
As homes get larger, the marginal value of each additional square foot often drops. That’s why “bigger” doesn’t always mean “worth proportionally more.” PPSF doesn’t account for diminishing returns.
3) Above-grade vs. below-grade is not the same animal.
In most markets, finished basement space contributes value—but typically at a different rate than above-grade space. PPSF collapses that difference into one number and pretends it’s apples-to-apples.
4) Condition, quality, and updates can dwarf the math.
Two same-size homes can sell $150,000 apart because one has a tired kitchen, worn roof, and 1998 bathrooms, and the other is fully updated with solid workmanship. PPSF has no clue how to price “newer, better, more functional.”
5) Lot, location, and external influences don’t scale with square feet.
A corner lot, mountain view, backing to a busy street, or next to commercial uses can move value up or down—without changing the home’s size by one inch.
6) It gets wrecked by comps that aren’t truly comparable.
This is the big Zillow trap: mixing different product types (ranch vs. 2-story), different levels of finish, different lot sizes, or different micro-locations and averaging them into a fake “market PPSF.”
The Zillow math problem: why online estimates push bad PPSF
Automated valuations are good at one thing: broad patterns. They’re not good at nuance—like a home that’s 200 sf bigger but functionally worse, has an awkward addition, a low ceiling basement, or backs to traffic.
So you end up with a number that feels objective, but it’s built on messy inputs:
- reported square footage inconsistencies
- bad comp selection
- mixed condition levels
- mismatched above/below-grade area
- concession-heavy sales that “look” like market price.
That’s how you get the classic result: “Zillow says it’s worth $X” and then the market says, “Nope.”
When price per square foot is useful
Let’s be fair—PPSF can help when you use it like a sanity check, not a pricing method.
1) Comparing very similar homes in a tight neighborhood
Same model, similar lot, similar condition, similar above-grade size, similar finish level. Think cookie-cutter subdivisions or condos with nearly identical layouts.
2) Spotting outliers (too high or too low)
If one listing is wildly higher PPSF than everything else, it’s a red flag. It might still be justified—but it forces you to explain why.
3) Rough screening before deeper analysis
Early in a pricing conversation, PPSF can help you narrow a range before you adjust for condition, features, and real comparability.
4) Condos with consistent layouts and amenities
Condo buildings (or clusters of similar buildings) often behave more predictably because the variables are constrained. Even then: HOA fees, special assessments, parking, views, and building issues can skew PPSF fast.
How to use PPSF without getting fooled
Here’s the right way to use it:
Step 1: Separate above-grade and below-grade
If the market treats them differently (it usually does), don’t blend them into one number.
Step 2: Only compare like-to-like
Same style, similar age, similar condition, similar lot, similar location influences. If you can’t explain why a comp is comparable in one sentence, it’s not.
Step 3: Look at the range, not the average
Averages hide problems. Ranges show reality. And if the range is huge, that’s your clue the comps aren’t truly similar.
Step 4: Use PPSF as a warning light, not the steering wheel
If PPSF conflicts with what comparable sales are telling you after adjustments (condition, features, location), PPSF loses. Market behavior wins.
A simple example (why PPSF lies)
Two homes:
- House A: 1,800 sf above grade, updated, great layout, 2-car garage, nice lot
- House B: 2,100 sf total, but includes 400 sf low-ceiling basement finish, dated interior, awkward addition, backs to traffic
On paper, House B is “bigger,” so PPSF logic says it should be worth more.
In the real world, buyers often pay more for House A because it lives better.
PPSF doesn’t buy houses. Buyers do.
What to focus on instead (if you’re pricing a home)
If you’re selling, the pricing conversation should be built around:
- true comparable sales (not just nearby sales)
- condition and quality relative to the comps
- functional utility (layout, bedroom placement, ceiling height, basement utility)
- location influences (traffic, adjacency, views)
- concessions and seller credits in today’s market
- current competition (active/pending listings set the tone)
PPSF can support this. It can’t replace it.
Bottom line
Price per square foot is a shortcut—sometimes helpful, often misleading. If you’re using it as the main reason a home “should” be worth a certain number, you’re not pricing the property. You’re pricing a spreadsheet cell.
If you want a pricing strategy that actually holds up (and doesn’t get embarrassed by the market or an appraisal), use comps the right way and treat PPSF as a secondary check.
If you’re in Denver and want a no-nonsense pricing sanity check, I’m happy to help you review the right comps and the variables that actually move value. Contact Colin at (720) 583-3200 or [email protected].
