As you may know, Nashville is booming with growth. There are also a lot of New Construction homes being built right now and prices have increased over the last few years. We built & sold a new 1958sf home on Illinois avenue in April of 2014 for $299,900 ($153/sf). That homeowner sold it 1 year later for $349,900 ($179/sf) with no new improvements. Running comps on this home today (February 2016), it is valued between $390,000-$400,000 (approximately $200/sf).
Builders also use price/sf for budgeting and cost to build. For example, if there were two homes with the same number of bathrooms, same type of finishes and similar grade yards, the larger home would likely cost less to build price/sf than a smaller home. Why? Because to add 400-800 square feet of living space is less material & labor (considering time & convenience for contractors). Plus there are certain "hard" costs for any new construction home that do not change like water & sewer taps fees & installing appliances.
Considering growth, need for more homes and construction costs, there have been & are currently a lot of homes in the Nashville urban core being built that range from 1800-2400 square feet. The prices of those homes have increased as in the example on Illinois Avenue. Therefore buyers wanting to live in those neighborhoods are not able to afford that same home 1-2 years later.
So with this in mind, we at West Nashville Living made a business decision to build some smaller homes for those buyers getting "priced out" of the area. This is helped meet a demand of different buyers. Some of the homes we have built are 1200-1500 square feet. From a construction cost standpoint, they do cost more to build ($/sf). However, they do sell for higher price per square foot. This is good to know for when you want to upgrade to a larger home in a few years.
In December (2015) we had a record-breaking sale in the neighborhood. We sold a home that was 1337sf for $315,000. That is $235/sf! Does that sound crazy high? Not really, when the other homes around it were selling for $350,000 and higher. We had 5 offers within the first day of listing. One prospect offered to throw in free haircuts for a year! That is good news for homeowners in the Nations!! Not the haircuts :), but the home value.