Before You Buy or Sell – Measure the House
Home buyers and sellers: I don’t want to hear about agent standards and appraisal rules. All I want to know is if I should be worried about square footage, before I buy or sell. So, what’s the answer?
The bottom Line: YES! You should be concerned about your home’s square footage; and absolutely yes – BEFORE you make any financial decisions. Before you buy or sell any house, ask your Agent about square footage. We live in a price-per-square-foot world and especially in today’s marketplace, every square foot matters. If they don’t know the answer, they can find out. If they try to avoid the square footage question and tell you the home’s size really doesn’t matter – find a new Agent. It shouldn’t be a subject unfamiliar to a licensed professional. The facts are crystal clear. “Size” influences the value of a house. It’s just the way the system works. Costs more to build it, costs more to buy it (of course, mixed in with a few “it depends.” For now, we value real estate based upon a “price-per-square-foot” mentality. Look at any CMA, AVM, or appraisal. Until that changes, size means money!
If you or your Agent use the square footage total listed in Public Records to determine any value, there’s a very good chance you are going to pay too much – or perhaps sell your home for less than you should. The short answer is – Size Matters. It’s your money – make sure you pay a fair price.
Do most people pay attention to the size of a house before they decide they like it? Most times, they do NOT. Most people are more interested in the neighborhood, how close to schools, shopping, work, parks; whatever. Location, style, age, condition, quality, amenities, etc. There are a lot of items that influence a choice of homes. Square footage typically doesn’t play a large role in the selection process for most buyers. But, once you’ve selected the house you want to buy (or before you decide on a listing price when selling your home), make sure you know the accurate “size” before you begin your valuation process. Many agents will argue, you either like the house and it fits your needs, or you don’t. True enough. However, after you select a home that you like; or you want to determine a fair listing or offer price; the home’s size becomes a whole new issue. It influences the perception of value; for the buyer, seller, agent, appraiser, and the lender.
So, before you buy or sell your next home, ask you Agent about the square footage. “Space” or square footage costs money to build and offers a specific contributory value in the marketplace. While value is never quite as black and white as price-per-square-foot, it is a part of the process and impacts the final market value.
If your real estate agent is using public records as the source of square footage information for your property, ask for a recount! Home-owners are losing thousands of dollars every day, just because some real estate agents have stopped measuring homes and discovered the local tax department’s website. Public records offer fast, free, and (so far) without liability, a detailed square footage number. The agents say the square footage number they use is based on the tax department’s measurements, even though they know the tax department has never entered the house and there’s a very good chance that number is wrong. This information is not created for use outside of the assessor’s office. But, it is being used more and more by agents, appraisers, and is used exclusively by most computerized valuation products (AVM’s). The square footage information in public records is created from “exterior only” measurements during a mass appraisal process. It was not designed, nor ever intended, to be used as a detailed source for comparison.
The real estate industry does not want to talk about square footage; at least not in public. In the closed MLS records, the square footage numbers can come from a variety of sources, and those sources may use a variety of methods to come up with the number. In 100 recent homes sales we tracked that were posted in the MLS closed records, the appraiser’s square footage total verses the square footage total listed in public records for the same property, showed an average difference of 403 square feet. So, depending on whether your home is being measured by an agent, appraiser (or by the county assessor) can make a huge impact on your home’s value.
Most real estate professionals use some form of a very basic calculation known as “price-per-square-foot.” The first two numbers looked at on any “closed sales” are the sales price and the size. The sales price divided by the square footage provides you with this all powerful price-per-square-foot. By calculating this “average” on three of four homes in the neighborhood, you can develop an estimated price-per-square-foot. If your home is 2,000 square feet, an agent will take that price-per-square-foot number (as determined from the comps) and multiply that by your home’s size to determine your current market value. If that square footage number is off by even 50 square feet, it can influence your home’s value. 400 square feet completely changes the value of your property.
Tax assessor’s desk…
A one hundred dollar average price-per-square-foot, times a 2,000 square foot home, equals $200,000. That same average applied to a 2,400 square foot home is $240,000. It really doesn’t take a large error in size to change your bottom line. If the difference in your home’s value (based solely on square footage) is only $5,000, does that really matter with the prices of homes these days?
If you think it’s not that big of a deal; write a check for $5,000 and then answer the same question again. While the real estate market is never that perfect, at the end of the day, a home’s size influences its value. If you are considering selling your home, you should insist that “Your Agent” either measures your home personally or has it measured by a licensed professional. A small investment at the start of selling your home can mean more money from the closing table; money that rightfully belongs to you.
If you are considering purchasing a new home, the same rules should apply. Most “buyer’s agents” will help you calculate a suggested offer price. However, if they calculate that value based on incorrect square footage data, any value they create is not reliable. There’s a lot of estimating going on for something that is most people’s largest lifetime investment. Before you invest in your new home, have it professionally measured. Then ask your agent to help calculate an offer price.
If money matters to you, before you buy or sell your home, make sure the square footage total is accurate. Indeed, Size Matters!
