People are always looking for a “down and dirty” way to determine the value of a home and square footage seems to be one of the most common things used by people whether they are buyers, sellers or real estate agents. While it seems straight forward, there are several variances that can lead to inaccurate determinations.
The market data approach to value uses similar properties in size, location, condition and amenities to compare with the subject to arrive at a price. Differences in any of these things can affect the price per square foot. Appraisers are trained and licensed to make these adjustments but the differences are not necessarily objective and that is where opinions start to influence the value.
Even if a person were to make accurate adjustments, they would be based on the assumption that the square footage of the comparable properties is correct. That leads to the next area of concern: how was the subject property measured.
It is commonly accepted to the measure the outside of the dwelling on detached housing. Is it customary in this area to include porches and patios under roof and if so, do they get full value or only partial value? Is there any value given to the garage since it isn’t living area? What about other areas that do not have HVAC coverage?
Some areas don’t give consideration to basement square footage at all. Others might give some value if it is finished or has access directly to the outside like a walk-out basement. Similarly, attic space could be finished and under HVAC but if the ceiling height is not standard for the home, it may not receive value.
The problems become exacerbated when different comparables are not treated consistently and yet the common denominator ends up being an average of the square foot price of each. This is calculated by taking the sales price and dividing it by the number of square feet being quoted.
The source of the square footage should be listed to help determine the accuracy. It could be what the builder said it was to the original purchaser. If there is a set a plans available, that might seem credible, but it is not uncommon for the builder to make changes while the home is being built which could increase or decrease the square footage.
Another source is the tax assessor. In many cases, they don’t actually measure the home, but take the word of the builders or appraisers for it. If permits were obtained to add on to the home since it was built, it should be reflected in the square footage. However, sometimes permits are not secured properly.
After reading this, you may think that more doubts have been introduced than solutions, and you are correct. It takes diligence on the part of all parties to determine the correct amount. The most highly trained person will be the appraiser and they should be measuring the home in its “as is” condition but understand that even a competent person can inadvertently make a mistake.
If you are looking to buy or sell along Chicago’s North Shore, I am here to help!