How a Deal Was Killed by Measuring

By Dave Fratello | September 22nd, 2020

In our real estate practice representing buyers, we sometimes get outside the bubble. Hey, if a loyal client asks for help in an area you can reach by car, you go.

All too often, once we leave the South Bay, we're reminded that the real estate industry isn't all wine and roses, and people aren't always going to do the right thing.

Here's a recent war story from one of those cases. We're going to anonymize this just enough, by not mentioning the city, agents or brokerage.

A little while ago, we helped buyers prevail in a multiple-offer situation without even being the top bid. Their offer on a $1.6M property was accepted, we opened escrow and began to schedule inspections.

Admittedly, something had seemed strange. In between our first and second visits to the property, we noted that tax records showed the property to be smaller than advertised. Specifically, the listing showed nearly 4,000 sqft. of living space. The tax records were closer to 3,400 sqft. Walking the property the second time, we became convinced: No way is this a 4,000 sqft. house.

Before writing an offer, we advised the buyer clients of this suspicion. If we got the property, we'd have to be sure to call in an appraiser to measure the house and check that square footage.

We checked the MLS. In all caps, twice, the listing stated that the higher square footage figure had been "confirmed" with the city building department.

That was a red flag, feeding suspicions. No city building department is going to "confirm" square footage. They can tell you what permits are on file, what zoning rules apply, etc., but they are not going to stand up and serve as the source for the square footage on a property. Regardless of what might be on file, no city agency is in the business of investigating, measuring or validating square footage.

Why would the agents use this unconventional method of verifying square footage?

Can't have been naivete. It's a team that sells dozens of homes each year in that area. And in almost every one of their listings, they simply list the tax records figure for square footage.

We got the appraiser in. He measured a little over 3,400 sqft., more in line with the tax records.

In all, the listing's advertised square footage was 528 square feet, and 15%, greater than the actual measurement was showing.

It was no rounding error. It was a huge difference.

Though they had been warned, our buyer clients weren't able to accept the findings. There were sleepless nights, arguments. Excitement had turned to anger.

Do you like being lied to?

Would you want to pay someone a million-plus to lie to you?

As brief as the "marriage" of a real estate transaction is, it requires some base level of trust. If someone will willfully inflate the square footage of a house to try to sell it for more money, can you trust any of their other representations about the property?

We dug into the story behind the faulty square footage number. Turns out, the agents had used a novel, flawed method to create their own square footage number, instead of using the tax records.

The original home was built in the mid-1980s. The current owners had added to the home in the mid-90s.

The agents found the original building permit from the 80s, and added to it the square footage that had been built onto the home in the 90s. That brought them near to 4,000 sqft. We inferred this to be the case from our research, and they admitted that this was precisely what they had done.

The problem: No one does that. (Don't ever do that!)

Plans are not the most reliable source for square footage, ever. Tax records can be off, but in a case like this, where the permitted addition had been shared with tax authorities 25 years ago, the tax records can be very close or accurate. If you've ever had a purchase loan or refinanced, you've probably got an appraisal with measurements that would be more accurate than other sources.

The biggest flaw in this case: The mid-80s building plans that the agents had relied upon didn't just call for an original home of about 3300 sqft., they called for a 2-story home.

But the house is a one-story house.

The mid-90s remodel did not remove a story. Instead, as best anyone can tell, the first building permit filed was for a home that was not built. The developer may have switched floorplans, as sometimes occurs in a tract development. A later permit suggests this is what happened, as the electrical permit reflected a 2700 sqft. house.

Uh-oh. Those local agents digging around in the old files had missed that data point. (From here in MB, we didn't miss it.)

The buyers were furious and sad at the same time. We discussed how it was the same house they had fallen in love with, great location, large lot, etc. But it just didn't feel the same anymore.

The agents couldn't really defend themselves over how they had botched the square footage. They claimed no intent to mislead. Claimed the sellers hadn't asked for them to gin up a higher figure.

Maybe they kinda said "sorry?" Not sure.

The agents did say something to the effect of "too bad," said the sellers would never offer a monetary concession and vowed to sell it to one of the other buyers instead if we didn't want to proceed. That, we recall.

It's not ironic, but it's interesting, that the listing team happens to be associated with the brokerage that generated one of the most important California Supreme Court cases pertaining to real estate, the 2016 Horiike case, which centered on... wait for it... a buyer who was misled about the square footage of the home he purchased.

Our buyers dropped out. The sellers found another buyer. The listing agents updated the MLS, partly, now using our appraiser's square footage, but retaining (why?) their prior assurance that the square footage was verified with the local building department.

While the buyers take a break, we'll stick to MB for a while. We closed a sale here yesterday, have others pending and are preparing other listings in MB and nearby.

Here, we'll play it straight, and expect the same.

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