Square Footage Errors – A Regulatory Affairs Division Case Study

By Stephen L. Fussell, Senior Consumer Protection Officer

The details in this case study are based upon an actual cmplaint. A real estate broker(father) who was also a licensed general contractor listed his daughter’s house for sale at $161,500. The father had built his daughter’s house and nearly every other house in the subject neighborhood. A buyer contracted to buy the daughter’s house at list price. Two weeks later, the buyer’s agent informed the father that the house only appraised at $152,000. The buyer and seller agreed to reduce the sales price to the appraised amount.

The father asked for a copy of the appraisal report and after reviewing it, saw that two of the comparable sales (“comps”) were houses that the father had built in the same neighborhood. The appraisal indicated that both of the comps had 1427 sq. ft. The appraiser had gotten the square footage information for the comps from the MLS system. The father indicated that as the builder, he knew that these comps actually contained 1334 and 1347 sq. ft., respectively. Comparing the advertised square footage with the actual square footage, the square footage errors by the listing broker for the two comps were 7% and 6%, respectively.

The county tax records indicated that the two comps contained 1427 and 1274 sq.ft., respectively. The listing broker claimed to have measured both properties and that the 1427 figure she entered for the second comp was a “typo” because she meant to enter 1274 sq .ft., the same amount indicated in the tax record. However, the evidence in the case indicated that the listing broker used the tax card information instead of measuring and calculating the square footage.

The listing broker eventually corrected the square footage data in the MLS for one of the comps, but did not correct the other comp saying it was too old to be used. However, both comps were still used in the preparation of the appraisal in the subject transaction, because they were in the same neighborhood as the subject property and were comparable in many ways. The subject transaction closed at a sales price that was adversely affected by the incorrect square footage figures entered into the MLS by the listing broker for the two other properties.

Possible violations of the Real Estate License Law in this case study include violations of N.C.G.S. § 93A-6(a)(1), (3), (8), and (10) for misrepresentation of a material fact, false advertising, being unworthy or incompetent to act in a manner which protects the public, and engaging in dishonest dealing, respectively. The broker-in-charge of the firm which listed the two comps also bore the responsibility for ensuring that the advertising for the property was accurate (Commission Rule A.0110(i)(3)).

As indicated in this case study, square footage misrepresentations have the potential to adversely affect more people than just the buyer of the property being misrepresented. Many other buyers, sellers, brokers, appraisers and lenders can be adversely affected. Every broker or appraiser who has used the sales prices of the aforementioned comps when preparing a CMA, BPO or an appraisal may have arrived at incorrect market values or expected selling prices for the properties they were evaluating, because the square footage for the comps were misstated.

Any broker who includes a square footage figure in the MLS or any other form of advertising should exercise great care to accurately determine and report the square footage. A broker should never rely upon tax records, MLS data for previous listings/sales, previous appraisals, blueprints, or the seller’s word for square footage. The Commission’s publication, “Residential Square Footage Guidelines,” is an excellent resource for brokers who measure and calculate square footage themselves.

This article came from the May 2018-Vol49-1 edition of the bulletin.