A Regulatory Affairs Division Case Study: Square Footage – Don’t Include Unfinished or Unheated Areas

A listing agent listed a residential property and hired a vendor to measure the house and calculate its square footage. The vendor reported 1,811.6 sq.ft. on the first floor and 1,607.2 sq.ft. on the second floor for a total of 3,419 sq.ft.  of heated living area. In a separate category labeled “Non-living Area,” the vendor indicated there was an additional 1,294.4 sq.ft. of “Partially Finished Area (below grade).” This was an area in the basement that had a fireplace, but no permanent heat source. The listing agent included the unheated basement area as “Living Area Below Grade” in the MLS system and represented a total of 4,713 sq.ft. of heated living area instead of 3,419 sq.ft., an overstatement of 38%.

A buyer contracted to buy the property and paid a $1,000 due diligence fee and $4,000 earnest money deposit.  The buyer then ordered a battery of inspections costing $910.  When the buyer’s home inspector reported that the basement had no permanent heat source, the buyer asked for a price reduction. The seller refused to reduce the sales price. The buyer terminated his contract and requested refunds of the $1,000 due diligence fee, the $4,000 earnest money and reimbursement for the $910 in inspection costs. The seller agreed to release the earnest money, but refused to refund the due diligence fee or reimburse the buyer for the inspections.

The violations by the listing agent included N.C.G.S. § 93A-6(a)(1) – misrepresentation of material fact, (3) – false advertising, and (8) – being unworthy or incompetent to act in a manner which protects the public. The listing agent entered into a Consent Order with the Commission in which she agreed to complete additional real estate education and received a stayed suspension.

The listing agent did some things correctly. When advertising square footage, a licensee should verify the accuracy of the advertised square footage figure by measuring and calculating the square footage or by hiring a qualified professional to do so. The listing agent hired a qualified professional to measure but then failed to accurately report those measurements. Pursuant to the Commission’s Residential Square Footage Guidelines, a licensee should refrain from including in the heated living area any space that is not finished consistent with the main living area of the house and/or is not heated for year-round living.  If a licensee has questions about how to report square footage, licensees are encouraged to consult their broker-in-charge or call to speak with a Regulatory Affairs Division Information Officer at 919-719-9180.