If you're buying a home, you should compare the home's advertised square footage with the official square footage on the Multiple Listing Service (MLS) and tax records. Your goal is to uncover any discrepancy and understand why the discrepancy exists.
The MLS takes its information from the home's official square footage found in the county's assessor office records. The assessors office usually assesses your property at its highest value each year in order to extract the greatest amount of property taxes. During recessions, the assessors office then keeps values artificially high.
Therefore, as the owner of a property, you want the assessor's office to have a lower recorded square footage than in actuality. Don't do what I did and update your property statistics with the city after a home remodel. You'll only end up paying more property taxes.
Conversely, as the seller of the home, you want to have a higher square footage officially recorded in order to sell the home for as much as possible. As a result, if you plan to sell your home within the next couple of years, you may want to contact the assessor's office to give them the correct larger square footage.
In some instances, a seller may fudge the livable square footage in their marketing material to make the home seem bigger than it really is. To reduce liability, they then include a disclaimer at the bottom to have the buyer verify the square footage on their own. Buyer beware.
This post will discuss:
- The most common reasons for wrong home square footage
- How to prove the correct square footage of a home
- How to calculate the square footage for a real estate listing (what counts as livable square footage)
The Most Common Reasons For Wrong Square Footage
As someone who has enjoyed visiting weekend open houses for the past 20 years, I'm struck by how often the advertised square footage is different from the city assessor's report. When there is a size difference, the advertised square footage is almost always larger than what is shown on the tax records.
Here are some of the most common reasons why the marketing data and the tax record data could be different.
1. Tax records haven't been updated in a while
Tax records with the accompanying property details are only updated after there is a sale or a remodel with permits. If there is no sale or remodel with permits for years, then the tax records won't show any updated housing information, including the latest square footage of the house.
Further, any changes in tax records may take time to be reflected on online portals. The update is usually not instantaneous. In some cities, like San Francisco, it can take five years to get your official square footage updated with the county assessor's office.
2. Renovations made without permits don't get recorded
The main reasons homeowners remodel without permits are: 1) save money on remodeling costs, 2) remodel more efficiently, 3) save money on paying for permits, and 4) avoid paying higher property taxes.
Some cities are notorious for their stringent requirements in order to pass the multiple stages of inspection for building, plumbing, and electrical. The difficulty of passing inspection is one of the reasons why remodeled homes should sell for greater premiums going forward. Fewer people want to buy fixers anymore.
I've done multiple gut remodels with permits and each one of them were nightmares. However, when the remodeling torture is over, I'm always glad to have done the work with permits. The reasons why are because I feel comfortable knowing the work was done properly and my home's Report of Residential Build (3R report card) shows my permitted work, which is valuable if I ever sell a property.
Greater Discrepancies In Square Footage The Longer The Ownership Duration
Over decades of ownership, the likelihood increases the owner has done some unpermitted home remodeling work to increase the livability of the house. Some unpermitted work may be minor, such as changing the wall tile. While some unpermitted work may be major, like removing walls and expanding the property for more livable square footage.
Hence, if you see the tax records show a smaller square footage than the marketed square footage, you must ask about unpermitted work. You must then assess how much you are willing to pay for the remodeled work that is unpermitted.
Historical changes to a home can vastly affect the square footage of a home. Listing your home with the wrong square footage can be deemed as misrepresentation.
3. No appraisal conducted in a long while
Part of selling a house is hiring an appraiser to value the house, especially if there hasn't been an appraisal done in years. If you're getting a mortgage, the bank will require an appraiser to ensure the house is worth what you want to pay for it. Bank lending standards are stringent.
Independent home appraisals educate and protect both parties. No two appraisals will have the exact same square footage of the house. But providing an appraisal in the disclosure documents improves the credibility of the seller. And as a buyer, your independent appraisal will help you feel more confident in making a reasonable offer.
4. MLS tax records may be different from the county assessor's tax records
The tax data that listing agents refer to on the MLS may not be updated according to the county assessor’s data. In such cases, the seller can obtain updated documents from the county assessor’s online portal.
Again, it's up to buyers to have their own independent appraisal to measure the livable square footage. Do not simply trust what is on the MLS or county assessors report online.
Why Providing The Correct Square Footage Is Important
The main reason why I wrote this post is because I'm in the process of buying another house. And the house I want to buy has various square footage numbers that need to be reconciled. Let's review why providing the correct square footage is important.
1. Square footage is one of the main criteria used by buyers
When there is no square footage listed for a home, this is a red flag. Buyers must ask why there is no listed square footage and what the estimated square footage is.
Most of the time, the reason why the sellers don't list the square footage is because the MLS or county assessor's office shows a lower square footage that would make the home seem more expensive on a price / square foot basis. This, in turn, may hurt the final sales price.
It's the same idea as not listing your mediocre GPA on your resume or not submitting your below-average SAT score on a college application. If the numbers don't make the home or you look attractive, you sometimes omit them to get the counterparts to focus their attention elsewhere. This strategy is seldom effective.
Example Of A Square Footage Omission To Try And Make A Home Seem Like Better Value
I'm been in a number of homes that feel like 2,000 square feet. However, the official square footage is only 1,300 square feet because the downstairs living area is unpermitted space. But the sellers try to convince prospective buyers the entire space is legitimate, which is why they leave the square footage off the marketing material.
If the selling price per square foot in the neighborhood is $1,000, the listing agent might feel better listing the home at close to $2 million. But if the listing agent inputs 1,300 square feet, then the $2 million asking price spits out a $1,538 price/sqft figure on the MLS listing. A 53.8% higher price / sqft may deter buyers.
As a buyer, you must be savvy enough to understand this marketing strategy. Then you should correctly discount unpermitted space from your offer price.
2. Correct square footage increases the seller's credibility
When you're buying something as important and as expensive as a home, you want to feel confident the seller is being honest. As a result, you review the disclosure documents thoroughly and ask as many questions as necessary. The more transparent a seller is, even with the bad stuff, the better.
Any experienced homeowner knows that things go wrong with properties all the time. The more that is disclosed, the better so that a potential homebuyer can be aware. It's kind of like buying a car with all its maintenance records versus receiving zero maintenance records. Most would prefer the former.
Listing improper square footage that's beyond reality reduces the seller's credibility. If the seller's credibility is reduced, so are the chances of them selling the house at a top price. Because as a buyer, you may start wondering what else is the seller hiding.
Roughly fifteen percent of all real estate contracts are terminated because of appraisal issues, including appraisal square footage discrepancies. If there are inconsistencies in your listing information, the buyer may withdraw their offer.
3. Misrepresentation or wrong square footage could result in fines or lawsuits
The MLS can impose a fine against sellers who represent wrong information on an MLS listing. This fine usually depends on the type of violation and changes across different MLSs. Generally, this fine ranges from $200 to $1,500.
If the seller ends up getting a fined by the MLS, this further damages the seller's credibility. This, in turn, may repel prospective buyers.
At the same time, all buyers should enter any real estate transaction with eyes wide open. It is a buyer’s responsibility to verify the square footage of a house before buying. Most states follow the ‘caveat emptor’ rule, meaning the buyer must follow due diligence before buying a property.
If you love the property, then it's all the more reason for you to have an inspector, who you pay independently, to inspect the house thoroughly. As the buyer, bring tape measures or laser measures yourself to get a rough estimate.
Documents Used to Prove Accurate Square Footage
To protect yourself as a seller, you need documentation that proves the accurate square footage and layout of your home. Accurate doesn't necessarily mean exact, since no two measurements are the same. However, the documents do serve as proof you are thorough and did your due diligence.
Here are the documents to prove your home's square footage:
- Recent appraisal report by a professional
- Updated county records
- Floor plans of your house
- Blueprints or building plans (if the house is newly built and never been lived in)
These documents should be in the home's disclosure package.
What Counts As Livable Square Footage?
Not all square footage is equal. What you want is livable square footage.
This realization or lack of realization is another reason why the marketed square footage may be different from the county assessor's office square footage. We'd all like to think the inclusion of non-livable square footage, like a garage's size, is an innocent mistake. However, there are plenty of instances when it's not.
The square footage you provide in the MLS listing is categorized as a ‘living area.’ It is also referred to as ‘heated living area’ or ‘heated square footage.’ Basically, it is the space used for human occupancy. Although, even human occupancy is debatable since some people are willing to live in garages or attics.
To be categorized as a living area, three conditions must be fulfilled:
- It should be heated, i.e. heated by conventional systems that are permanently installed in the house
- It should be finished, i.e. with completed walls, floors, and ceilings and a ceiling height of at least seven feet
- The area should be directly accessible from other living areas, i.e. a door, a heated hallway, or a stairway.
Additionally, areas like the attic, closets, stairs, etc. are calculated under the living area if it is a functional part of the house.
How To Measure The Square Footage Of Your Home According To MLS Guidelines
For those of you who want to measure the square footage of a home yourself, here are the MLS guidelines.
- Start by measuring the exterior side of your home. Measure the length of each exterior wall.
- Draw a floor plan if the listing doesn't have one already.
- Measure interior spaces that can't be accessed or measured from the exterior. Common areas include a basement or attic.
When in doubt, measure the square footage of the home yourself or with an appraiser or inspector.
“Above-Grade” and “Below-Grade” Areas
When listing on the MLS, it may require you to mention the ‘above-grade’ and ‘below-grade’ areas separately.
Any area that does not have earth next to its exterior wall is considered to be “above-grade.” For instance, all stories above the ground. “Below grade” space refers to any room that has earth next to any part of the exterior wall, such as a basement.
However, for homes on hills, an area that has earth next to it is often an inevitability. Homes on hills are often built like a step function down along the slope of the hill. One side of the house has a wall and foundation that backs up to the ground. While the other sides opens out to a view and/or sides of the house. We're not talking walls being surrounded on all sides with earth.
Whether you are a buyer or seller, the real estate agent representing you should do a square footage measurement of your home. After all, real estate agents each earn a 2% – 2.5% commission.
If the real estate agents somehow aren't willing to measure the house for you, then you should find another agent. Or, you can hire a professional appraiser to provide you with an appraisal certificate that will contain accurate square footage.
Unfortunately, no matter how meticulous you are, a personally calculated square footage measurement does not count as official proof. Therefore, having the certified documents mentioned above are necessary.
Pay Attention To Home Square Footage Differences When Buying
If you are a buyer, don't accept the marketing material as face value. You must do your due diligence and thoroughly inspect every aspect of a house before you buy. Calculating and verifying the home's livable square footage is something that must be done.
If you end up buying a home that you thought was 2,000 square feet, but is really only 1,800 square feet, you have potentially lost up to 10% of your home's value. On a $2 million home, that's $200,000.
For your own sake, spend time carefully measuring the square footage of the home you want to buy.
Now that you know the importance of home square footage accuracy, learn how to make money on homes with the wrong marketed square footage. By paying more attention to the details, you could unlock tens, if not hundreds of thousands of dollars in value.
Reader Questions And Suggestions
Have you ever found discrepancies in the marketed square footage of a home versus the actual square footage based on tax records? If so, what was the reason for the discrepancy? Why don't more sellers, buyers, and real estate agents pay attention to these details?
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