The Great Square Footage Debateby Hamp Thomas on 05/03/19
When it comes to measuring and reporting square footage, we have left brained people, we have right brained people, and we have a lot of differing (and very strong) opinions. And, like so much of the real estate industry, “it depends” can certainly apply to the square footage issue. Inaccurate square footage details are a major problem in MLS systems and in public records systems all across the country. These errored details change home values and harm consumers. It is way beyond time for the real estate industry to join the rest of the standardized world. For an industry who touts their strong commitment to ethics and consumer protection, they can’t even agree on how to measure a house, which is their main commodity. Realtors® work in a price-per-square-foot world, yet far too many are not concerned with getting square footage numbers accurate. It simply can’t work both ways. Either square footage is extremely important, or they should NOT be using their magical price-per-square-foot formula to price homes. And, when it comes to pricing errors, we are not talking about a few hundred dollars. We are talking about tens of thousands, and often much, much more.
So, who is responsible for providing accurate sqft details? Too many people have been taught that public records provide the “Official Record” when it comes to sqft. The truth is – the tax department doesn’t need precise sqft. And, no one in the real estate industry has ever met with anyone from the tax assessor’s office to let them know that agents and some appraisers rely on the sqft totals from the tax department. The assessor has no liability or responsibility when it comes to calculating sqft. For their intended purpose, local tax departments do an excellent job. If you ask them, they will be the first to tell you these numbers are only estimates.
In 1908, when the MLS and Realtor® organization was first formed, one of the main concerns was the accuracy of their data, especially the sqft information being used by agents. For over eight decades, Realtors® were responsible for measuring every home and making sure the sqft details reported in MLS were accurate. Then came the internet explosion and agents had access to free online sqft details. Like a gift from heaven (so they thought), the tax department provided them with a sketch and specific number. It was assumed they could simply make a disclosure and all their responsibly was gone. Like the Good Fairy dropped a magical gift down on the Realtor® organization, agents were easy to convince they should trust the numbers in tax records. They trusted that info and taught the public to also trust it. Now, inaccurate square footage information spirals out of control and no one is stepping up to help protect consumers. It is a shame on the real estate industry!
This problem is very real and we should not ignore it any more. With the automated valuation revolution in full force and the much heralded power of computers and the price-per-square-foot estimates they believe provide the “easiest method” to calculate real estate prices, real estate pricing is being provided to unsuspecting consumers by someone who really doesn’t understand the power of what they are doing. They are not taught the importance of these numers and the consumer is the real loser in this battle. Plug in a few “comps” and presto – easy to know the current market value. One problem comes in with the “comp.” Who gets to decide what is the most similar and fair comparable property? What an appraiser will choose, what an agent would select, and what a computer would choose, are often three very different properties. Then add inaccurate square footage to those comps and you’ve got a totally unreliable pricing system.
The technology gurus claim AVMs can price houses just as efficiently as appraisers. It’s just not true. That’s not my opinion, it is simply the facts of the business, at least for anyone who cares enough to look closely at the numbers. It comes down to their favorite word – information. They proclaim to have access to massive amounts of data, so they argue their values must be better. Right? Wrong!!!
More does not mean better. For a formula that relies on only two numbers, when one of those numbers is wrong over half the time (by enough to change the home’s value), you get over and under priced homes. Consumers trust agents who price their homes based on a simple formula that is based on inaccurate information. The word “information” is misleading. Real estate will always be a partially subjective business, and one that demands accurate square footage details to get the value right.
Real estate is at a crossroads. Either we truly care about consumer protection or we only care about making money. Where should we fall on the list of most trusted professions when we don’t even have an industrywide measurement standard? For now, where we belong - near the bottom on that list. It’s time to step up and take some responsibility, and help consumers trust us once again. We are in a battle for our future and we need to adopt one nationally mandated measurement standard…