The Solution to the Square Footage Puzzle Size or square footage provides the “currency” of real estate and the very foundation of property values. While location influences every residential value, size or square footage influences the comparison of all residential property. No true comparison can be completed without including size. This all-powerful phrase “price-per-square-foot” is a phrase and a concept used daily throughout the real estate industry. It is an American tradition, which most homeowners seem to know and trust. Just watch any HGTV® show and this simple formula is shown at the beginning of every home; not a range of size, but a specific square footage total. Every calculation of value includes the dwelling’s size. Two of the most powerful numbers in the real estate industry; the sales price and the size. The sales price is easy; it’s a recorded fact easily verified on the deed. The size or square footage – well, that’s another matter all-together. The only number listed within the public records system which is NOT based on a verifiable number (or even measured by any universally approved system for creating or naming the numbers) is square footage. The assessor’s office is like the rest of the real estate industry and relies on a hodge-podge of methods to measure a single-family home. Every component of a single-family home is measured by some national or international measurement standard (HVAC, plumbing, electrical, nails, siding, shingles, etc.), that is until they are all combined into one complete dwelling. After the parts are joined to form a home, there is no universally accepted measurement standard. With all the experience and expertise available to the real estate and appraisal industries, in the last 100 years or so, you would think they could have agreed on one specific measurement method. Realtors® and appraisers are the real estate experts, and consumers deserve to know the true size of their home. In today’s real estate market, “it depends” is the term often used when discussing measuring square footage, and is NOT a term that instills confidence in an already market weary public. Licensing in every state requires a fundamental knowledge of measuring residential square footage. The public should expect the benefit of that required knowledge. Many people have been trapped by square footage un-regulation and many home values are based on incorrect square footage information. Property valuation is an art, not a science. That “art” requires accurate property details in order to produce accurate results. The information (used by agents, appraisers, and AVM’s available within MLS and public record systems) is becoming less dependable all the time. There is a major trend towards using square footage information taken from public records; even though it is common knowledge this information is often erroneous. Those records are often inaccurate from 5% up to 50% (and higher), and in error much more than most people within the real estate community want to admit. At present, almost every CMA and appraisal report contains errors. Not a misprint, but a growing concern within the real estate and mortgage industries. Primary and secondary mortgage investors are just now starting to recognize this national problem. Even the insurance industry is starting to address this problem by teaching home measurement classes to brokers and agents. Values determined using the square footage totals available from public records are creating under and over estimations of value far too often, and creating a new problem for an already delicate market. It’s a problem which is rapidly growing and starting to draw more media attention. It also may be turning into the next crisis the real estate industry has to face unless the problem is addressed in the near future. This is not a new problem. This discussion has been going on for much of the last century. So what’s changed? Why can we solve this problem now, when we haven’t been able to figure it out in over a hundred years? Actually, two recent additions to the industry have paved the way for this long overdue solution. First, the American Measurement Standard. The AMS is actually not new and is one of the two major measurement methods currently used throughout the real estate industry. This methodology contains more than three times the information available in any other national measurement guideline. However, prior to 2009, this methodology has been unwritten in its entirety. It’s hard to imagine why it has not been available in a formal standard of practice before now, but whatever the reasoning, this fundamental system of practices and procedures is now available and provides a huge step forward in the fight to standardize residential square footage. However, that’s only half the battle. Colorado was the first state to provide a formal square footage disclosure form for their agents. The rule (Commission Rule E-43) applies to all real estate brokers licensed by the Colorado Real Estate Commission. It requires the listing agent to complete the mandatory form whenever a square footage total is advertised and/or provided to a seller or buyer, or the MLS. While a licensee is NOT required to measure the square footage of a property, listing brokers will be required to accurately disclose the square footage of living floor area, the source it was obtained from, and the date it was obtained whenever the broker disseminates such information. In the real estate industry, we have forms for just about every aspect of our business. This form is a huge step forward and helps to protect listing brokers and consumers. Regardless of how a real estate professional measures a house, the first key to success is having the ability to produce a formal document (containing complete details of measurement rules, definitions, and procedures) and say “this is how I measured the house.” If a judge asks you what method or standard you used to measure square footage, what would you say? Many people throw out a familiar name, but when pressed for details, don’t really understand all the rules. It’s the only option they have ever heard and assume everyone has been taught the same method. Not true! There are also many parts left incomplete which still require measurement totals to be subjective. It’s just not an exact system and it appears to make it easier for everyone if the methodology remains vague and uncertain. How can a professional be held liable for something which has no nationally mandated standards? As long as no homeowners push the issue, everything is fine. However, if you look at recent court cases in Texas and Oklahoma regarding the measurement of square footage, real estate professionals are being held responsible for the numbers they provide. The public trusts the real estate experts, and part of that trust includes providing an accurate square footage total. In a poll of 100 homeowners, 96 said they expected their agent to provide the accurate measurements of their home and assumed it was part of the professional services of a Realtor®. So, now if you have a copy of the American Measurement Standard and can allow other professionals to reproduce the square footage totals you created if there is ever any question, does that make everything safe and reliable? It’s a good start, but doesn’t quite solve the entire puzzle. The second key to solving the puzzle is providing a proper “Statement of Square Footage.” The Colorado form provides a good example and you should consult a local expert to help you create a form for your own use. An agent armed with a proper square footage statement or square footage disclosure form (much like all agency disclosure forms) and a verifiable Standard of Practice to show how they created their calculations, is far better prepared to answer the square footage question should the need ever arise. While we all hope to never have any questions or problems with a square footage total, if there are ever any questions or concerns, you are better equipped to defend your measurements and leave no doubt as to the methodology used to create the square footage number. A form signed by all the agents, and the buyers and sellers (advising them of the methodology utilized and allowing them the opportunity to have the total verified by a professional of their choice) eliminates any problem after closing or settlement. Any questions can be resolved before the property changes ownership. Agents and appraisers would be using the same measurement method and it is easily verifiable. This method is good for agents and good for consumers. In many areas, agents are using size when they advertise, to let homeowners know they understand the importance of creating that number correctly and what an influence it has on the value of their property. Now there is a specific, complete measurement system that reduces liability and helps to protect the clients we work hard to professionally serve. A professional, reliable, re-creatable square footage measurement and disclosure system; it’s a win-win situation. It also helps keep the professionals in charge of the real estate data, not the local assessor’s office. The MLS becomes more reliable and therefore provides better comparisons in the future. Better CMA’s and better appraisals, making more secure loans. Take a look at the American Measurement Standard and the “Size Matters” books; helping to keep Realtors® as the most trusted SOURCE of real estate information in the world.