I don't think people like to pull out their calculator and derive their offer price from the current price per sqft of a neighborhood when they buy houses. It doesn't work that way. However, intuitively people tend to offer more money for a bigger or better house than the available comps, and vice versa. So in the end the math works out and homes tend to sell at around the average price per sqft of the neighborhood.
However, if you are looking for the best deals, you should always go for the biggest house that is a fixer, that way you can get the most bang for your buck in terms of the price per sqft.