Thinking about buying a house? The first dollar figure you’ll want to know is the price, but a close second is the cost per square foot—along with the average cost per square foot for a home in that neighborhood (or the median cost for a square foot of home space, which is actually a better representative of the middle ground of the market than the average).

Here, realtor.com tells you what you should know about these numbers, and how to use them to your advantage as you shop for a home.

How to calculate the square foot costs for a home

A home’s cost per square foot usually is prominently featured on the on-line listing and property information sheets you pick up at an open house. But the price per square foot won’t tell you much on its own. This number is best understood when compared with similar homes in the surrounding market.

So, your next step should be to type in the city, neighborhood or ZIP code of interest into a site like realtor.com/local. This will give you the median cost per square foot for homes in that area of your city (as well as the median asking price, closing price and the number of homes for sale in the local market—all useful info during a house hunt).

What’s the median or average price for each square foot in a home?

It’s important to know the difference between the median and average (or mean) price. The average price is simply the arithmetic mean, calculated as the total of all home sales, divided by the number of sales. An average sales price can be skewed by a few higher or lower home values. The median, however, is the value separating the higher half of a data sample from the lower half. If all of the real estate property prices were lined up by value, the home sale in the middle would represent the median home value.

According to the latest estimates, the median price for each square foot for a home in the U.S. is $123. But that can vary widely based on where you live and other factors, with certain neighborhoods considered more desirable than others and fetching a better price as a result. 

How cost per square foot can help you negotiate

When you run your comparison of a home’s cost per square foot with the neighborhood median, you can use that information to help you determine whether a place is a bargain or overpriced.

For example, if you see a home you love priced at $150 per square foot, but then you find that the median price for a square foot for the neighborhood is $135, this suggests that the cost of the home you’re considering could be too expensive. This can be an opportunity for you to negotiate for a lower purchase price by pointing out to the seller that homes of similar size in the area cost far less.

Or, conversely, if the median price a square foot is $135, but this home is only $120, you may have come across a bargain. As a buyer, you know there’s more to consider than the cost per square foot of housing, however.

A single-family home on 5 acres of real estate will generally be worth more than one with the same square footage, but on a small-size lot; a new home generally costs more; and a large house may cost more overall because of higher labor costs and total construction costs. A house may actually sell for less than you might expect, based on its size, if it is overbuilt for the area.