Time to Start Suing Realtors® for Inaccurate Square Footage

Yes, it’s time for real estate agents to start accepting responsibility for providing accurate square footage details to all prospective buyers, other agents and to appraisers who all depend on the data they provide. No agent is required by law to measure a house. But, in most places, “if” an agent provides it, it must be accurate and that means it can’t be taken from tax records.

When an agent meets with a seller to provide a CMA, they can’t do their job properly without knowing the true square footage of the home. We live in a price-per-square-foot world and the vast majority of real estate agents use a price-per-square-foot formula to calculate a home’s value.

While they all understand this simple formula, they are not taught the importance of quality information. Far too many agents (and home buyers and sellers) believe the myth that the local tax department provides the “Official Record” of their home’s square footage. They believe even if the information is wrong, it’s probably not enough to impact the value. Wrong! I can’t stress that enough. 100% wrong. It obviously depends on your location housing styles and ages, and other factors such as home with upper levels and basements (which are the worst offenders). After studying this topic for over fifteen years, I have thousands upon thousands of examples that show just how many and how large the square footage errors are in public records. And remember, the tax department does NOT need precise square footage details. A few lazy Realtors® started using the square footage in tax records in the early nineties and it spread like wildfire.

What it causes is over and under priced homes, low appraisals, and cheats consumers out of millions upon millions every year. Yet the National Association of Realtors® continues to ignore this problem and could easily fix it with one new rule. One rule that requires all Realtor® members to provide accurate square footage details, based on a nationally mandated measurement standard, into every MLS listing. Consumers are currently at the risk of the state they live in, their local MLS system, and their individual agent’s knowledge on this subject.

Maybe this lawsuit in California (Horiike vs Coldwell Banker) will help draw more attention to this matter and bring other attorneys into the action. For right now, until the legal community holds real estate agents liable for providing inaccurate square footage, consumers will continue to get cheated every day. It’s time to bring about a change.

MLS systems all across the country are riddled with inaccurate square footage details, and those details hurt buyers and sellers. Also, any automated valuation model can only be as accurate as the square footage details. They all seem to use the same information from the local tax department. If you use a formula that only uses two numbers and one of those numbers is wrong, all your valuations are also going to be wrong. If $5,000, $10,000, $30,000, $50,000 and much more doesn’t matter to you, go ahead and trust computerized valuations.

However, for a six percent fee, you would make sure your agent measures (or has your home measured) BEFORE they ever calculate a price. Otherwise you can be assured you will be leaving money on the table.

Inspectors, Home Appraisals & Hybrids, Virginia Appraisal Board

Inaccurate square footage is already an issue that hurts the home-buying public. The lack of a nationally mandated measurement standard creates confusion and disagreement among all those that provide this information for the public. The inconsistencies among agents and  appraisers is a huge problem. Mandating ANSI® would be a great start, but even ANSI® leaves numerous measurement issues subjective and causes debates among agents and appraisers. I authored a CE course titled ANSI®, Home Measurement and the Power of Price-Per-Square-Foot for agents and appraisers, and even developed a Home Measurement Specialist certification program. I am always amazed to see the comments from 20-year veterans who learn new info and so many comments suggesting this information be a part of mandatory education.

Even with the training an appraiser’s license requires, there continue to be problems with inconsistent data. I can only imagine what a disaster we would have if we allow home inspectors without any training or licensing requirements to create the square footage data that appraisers rely on to calculate values. We live in a price-per-square-foot world and every quality valuation is dependent on the accuracy of the very first number – square footage. Without appraisers calculating these numbers we are inviting inaccurate appraisals.

Virginia and North Carolina are well respected around the country with proactive appraisal boards. Over the last 15 years, I have heard from hundreds of appraisers asking us to set examples so their states can follow suit. This is a dangerous time in the appraisal industry. I authored a book titled “Death of an Industry-Real Estate Appraisal” back in 2010. I have watched what I believe to be a very well orchestrated plan to reduce, and then eliminate, the appraisal influence in the mortgage industry. This is the “Golden Rule” alive and well in the appraisal industry. If we don’t draw a line in the sand to stop the so-called “modernization” of our industry, we will reach the point of no return and consumers and mortgage investors will be the ultimate losers in this battle. At the end of the day, all the changes to this industry are simply about money and control. If no one other than licensed appraisers were allowed to profit from the appraisal process, all the talk of modernization would disappear immediately. This entire debate is about who profits from the appraisal process, pure and simple.

It’s hard to imagine the very people who will not allow a licensed and trained appraisal Trainee to inspect a home, will now allow any undisclosed and untrained person to enter people’s homes and provide the very data they would not accept from a trained expert. Why the change? Follow the money. They can basically hire the person they can pay the least to complete an inspection. The appraisal process requires the appraiser to be involved in the entire process, to see the neighborhood and view the house personally is one of the most important steps in the process. If others perform the inspection, appraisers are at the mercy of their pictures, their comments, and also items they leave out of the report. Things the appraiser would have noticed, and things that would impact the valuation. These inspections will lead to reports filled with errors. Inaccurate square footage alone will cause a dramatic increase in valuation errors. If those numbers are wrong so is every number that follows. Also, these inspectors don’t even have to be named and have no responsibility when the errors are discovered. All in all, it’s an invitation to fraud and abuse and a nightmare waiting to happen.

I urge you to stand up and protect home buyers and not allow the appraisal process to be further dismantled. You have a great power and responsibility in your hands, and I sincerely hope you will side with logic and end this before it goes any further. Since the inception of the AMC model, appraisals are more expensive and take more time than ever. It reduces the number of quality people entering the industry and reduces the most qualified to train the next generation. Any further reductions to our numbers ensures that big banking may ultimately get their wish, and eliminate the only participant in the home buying process without bias. Appraisers protect homebuyers and are the very best chance at sustaining a credible valuation process.