Expert: liznarr - 5/20/2007

Question
How does the square footage of a home affect the selling price? My wife and I are buying a home which the MLS said was 1928 sq.ft. I checked the county appraisal report which said it was 1715 sq.ft. We had already made the offer which was accepted. We offered what was being asked. The home already had a first right buyer contract. It had already been reduced in price. Our realtor said that square footage doesn't include the unheated garage or an unheated screened-in porch. The dimensions given for room sizes etc. just don't add up. We gave the broker money for an appraisal. Our realtor called about a credit we are to receive as a result of a home inspection we paid for. He also mentioned he had heard that an appraisal might not be required for us to finalize the loan. This doesn't sound right to me. We made an offer and it was accepted, but we thought the house had 1928 sq.ft. If it is determined that the house has less square footage, what can be done about the sale price we had agreed to? Less house, less money? Why would a broker suddenly decide they didn't need an appraisal? We won't have any answers for some of this until the beginning of the week. If possible, I would like to have insight before talking with the broker or our realtor again. Many thanks.

Answer
Hi Dan,

First of all, county appraisal reports (at least in the area where I work) are generally not accurate.  I would, for purposes of discussion, assume the same for your area.

Your Realtor is correct in that square footage shown in an MLS listing should reflect only the heated areas.

Next, most Multiple Listing Services will comment as to the accuracy of the square footage shown, for example, as being possibly plus or minus 10%.  Applying the +/- ten percent variance for SF, 90% of the 1928 SF you intend to purchase amounts to 1735 SF.  Based on this theory, a SF of 1715 that you saw on a county appraisal report –again, which may or may not be accurate – exceeds a ten percent variance.

If you have questions about the SF of your intended purchase, I would ask your agent to independently measure and see what SF he comes up with and then compare his total with the listing agent’s measurements (or other SF source) used for the SF in the listing information.  The written appraisal, however, is what should yield an accurate measurement of SF for you to go by.

Square footage measurements for heated area are taken from the outside of a home.  If outside measurements of the heated area of a home were, say, 30 x 60 feet, the heated SF would be 1800 SF.

Inside measurements generally lose approximately six inches from exterior measurement (taking into account approximately six inches for the thickness of framing and exterior brick or wood).  Therefore, the inside square footage of the same 30 x 60 foot home would only be 1711 SF (29 x 59 = 1711) when deducting six inches from all sides of a rectangular-shaped 30 x 60 house.  

Many lenders will not require new surveys if one has been done in the last few years, but most lenders will require an appraisal to insure that the loan they make is not in excess of the value of the property.  Exceptions to a lender requiring an appraisal could be (1) If you are making a large down payment, or (2) if the lender is using what is referred to as a “desktop loan” where an estimate of value might be obtained without a formal appraisal.

When you say you gave your “broker” money for an appraisal, I am assuming you are referring to your lender.  If this is the case, and no appraisal was required, you should have been immediately notified of such.  

The “unknown” to me from your note is WHO chose the lender you are using.  If your agent chose your lender for you, he should have known whether or not an appraisal was required.  To come back to you after-the-fact and casually “mention” that an appraisal might not now be required is unacceptable, especially in view of the fact that you apparently paid up-front for one.  If YOU chose your lender without assistance from your Realtor, given the fact that you paid up-front for an appraisal, you STILL should have been notified if an appraisal was not a requirement for obtaining your loan.

Square footage always plays a major role in determining value, but there are always other factors that come into play when comparisons are made by an appraiser in determining value, such as do all comparable homes have double garages; do some have all hardwood flooring and others mostly carpeting; is there a fireplace; the number of baths; lot size; condition of the home, and on and on.

If obtaining a written appraisal is important to you (and it would be to me if I were in your shoes), I would call your lender and state that you want them to order an appraisal to make sure you are not overpaying for the property you have offered on and that they should make the appraisal a condition of obtaining the loan.  If the lender says “no,” you can tell the lender you want your deposit for the appraisal refunded immediately, pull the loan, and go with another lender that will do an appraisal for you.

If you do not have enough time remaining in your Contract to change lenders, go to the top of the ladder at your lender’s office and demand answers.  Home buyers are entitled to know up front if an appraisal is not required.

Finally, my opinion on your square footage question is:  (1) If the MLS information provided to you does not state any variance for accuracy of SF represented, and (2) an appraisal comes in for at least the amount of your SALES PRICE (versus loan amount) and in spite of any SF difference, (3) you could possibly have a weak case for demanding money back.  A Court might say that in view of slightly more than a ten percent variance, you “saw” what you intended to purchase and did not voice an objection to the size of what you saw when the offer was made.  If you wish to pursue this further, you should consult with an attorney for legal advice.  

Hopefully, the county appraisal records were simply incorrect.  If not, you now have more information to go about getting answers you want.

Good luck to you, and write again if you have additional questions.

Regards,
Elizabeth