That’s right, accurate square footage can help stop low appraisals. Something as simple as measuring each house can keep you from losing a sale because of a low appraisal. Let’s face it, in most markets there are less comps these days. Less comps means more focus placed on each sale and each sale is used in more comparisons. Details are critical to any valuation process. Accurate property details can make the difference between getting a sale to go through, losing a sale, and even forcing home prices lower in a neighborhood where inaccurate square footage details have been reported. It happens every day and it's getting worse, as more and more agents depend on the sqft details listed by their local tax department.
It’s just a fact of the valuation process. Look at this simple example. The house was measured using all exterior dimensions, including the garage and screen porch. Then, the garage and porch were deducted from the total square footage. The total “under roof area” they calculated was 3,106. After deducting the garage and porch, the listing shows a total Heated Living Area of 2,430. Sounds logical, and I’ve seen this method used for years. Even the most veteran brokers use this method and no one has ever told them there was a mistake waiting to happen. The problem is, there is almost always an error when square footage is measured this way. In this case, the actual finished square footage total was 2,357. Okay, 2,430 vs 2,357. Doesn’t sound like a very big deal and really, how much difference could it make? Let’s see and you decide for yourself...
The house sold for $215,000.
215,000 divided by 2,430 = $88.48 per-square-foot.
215,000 divided by 2,357 = $91.22 per-square-foot.
The house located next door measured 2,400 sqft. Using the numbers from above, let’s see how this comp might change a value.
2,400 sqft times $88.48 = $212,352.
2,400 sqft times $91.22 = $218,928.
A difference of $6,576. On a $215,000 sale, this six-grand difference may be just enough to cause a low appraisal and send your commission check right into the trash. Or, cause an owner to lose a sale, perhaps two weeks from the day they are scheduled to move and close on another house. One lost sale often has a domino effect and sends many people into panic mode. Why take the chance? Take the time to measure, or better yet, have someone else do it for you. Let them take the responsibility and liability. It’s the way of the future in MLS, appraisers measuring every home.
If it happens on one house and lowers the next sales price, and then it happens again, and again; the prices are going to keep pushing downward and can change the market value in any neighborhood with something as simple as square footage. And, if you use the square footage info listed in tax records, the values may go all over the place, above and below where they should be. Using public records for square footage is taking a risk with your client’s money and your liability.
Until we change the way we determine home prices and the entire appraisal system finds a new way to value real estate, this problem is going to remain a bigger influence on property values than most of us want to admit. It’s only math, but that math may be taking money out of your (and your clients) pockets.