Most real estate professionals (and homeowners) perceive real estate values based on a simple philosophy; price per square foot. The two amounts which provide this powerful number are the sales price and the size of a home. The sales price is a fact recorded at the county courthouse. The size or square footage is a number which has been taken for granted for so long, no one really thinks about where it comes from. The current trend (by real estate professionals, homeowners, insurance companies, and especially AVM’s) is to use the square footage information recorded in public records.
The property assessor uses a mass appraisal process and in most states never enters the dwelling. The errors in square footage should alarm us all. 50, 200, 500, many over 1,500 square feet, and mistakes are more often the rule, rather than the exception. Measuring and calculating square footage from the outside of a home is virtually impossible. The county assessor’s department is creating an estimate of size, for assessment purposes only. That information was never meant to be used as a detailed source of square footage. County officials have no liability (to homeowners or the real estate industry) in reporting square footage details and they don’t have to worry about errors and omissions.
The real estate industry is simply taking information, meant for use within the assessor’s department only, and trying to force that data to work in the real estate information system. Property values are being determined based on information which is wrong more often than it is right.
Automated Valuation Reports (computer generated value systems) base their values on some formula, which includes the square footage of the home. Any “value” conclusion based on faulty data can only provide unreliable results. Use of these inexpensive value services are gaining momentum among lenders, often due to the quality of the profits, not the quality of the product. Many consumers are now being forced to pay for an Internet based report as well as a traditional appraisal.
The Realtor® organization was founded (and grew to prominence), being the providers of real estate data. Known as providers of “the most trusted source of real estate information in the world,” agents have fallen prey to the easily accessible, free, and without personal liability, public record system. So, does this mean that public records are now the providers of the most trusted source of real estate information? Over the past five years, the use of public records within the real estate industry has skyrocketed. During the same time period a real estate crisis continues to grow.
After years of investigation, I believe there are two things which must happen to get the real estate industry back on tract. First, Realtors® must measure houses. This seemingly simple number, controls real estate loans and values across the country. Public records were never meant to be used for this purpose and cannot accurately provide this vital data. The second step is one that real estate professionals have been unable to agree on for over a century . . .
The National Association of Realtors® (together with the Appraisal Foundation) must establish one national measurement standard. We really can’t expect agents to measure property when there is no nationally recognized methodology for creating this information. Square footage literally depends on who measures the house and what method they use. “It depends” is not a phrase you want to hear when being told the size of your home, which will in turn help determine the sales price.
While no single measurement system will ever account for every scenario and there will always be exceptions to the “rule,” there must be a “rule” to have exceptions to. Realtors® and appraisers share information and both depend on the accuracy of square footage. Yet, neither industry endorses a specific measurement “standard.”
They both suggest that members use a “nationally recognized standard of measurement,” but yet endorse no specific method.
Currently, there is only one formal measurement standard. Most real estate practitioners have heard of the “ANSI” measurement standard. This standard was first introduced in 1996 and was created at the request of the Greater New Orleans Home Builders Association. The American National Standards Institute (ANSI) provides measurement guidelines for thousands of industries. No measurement standard has ever been created from within the real estate industry. Even though the (ANSI) methodology has been in circulation well over a decade, it is not widely used and does not agree with the methodology most professionals utilize in the field.
I originally contacted every national organization in the real estate and appraisal industries, and also offered suggestions to “ANSI” with the measurement and calculation of stairs as the main focus. Initially met with a brick wall, it was obvious no one really wanted to stir up this potential hornet’s nest. I started contacting agents, appraisers, home builders, architects, etc. Anyone with an interest in square footage was contacted and asked their opinion.
After five years of research and long hours, the “American Measurement Standard” was born. This is not a new method of measurement. However, it is the “standard” as defined by its use among real estate professionals. Why it has been previously unwritten in unknown. This newly written standard of practice, now allows agents and appraisers the ability to point to one method and say “this is how I calculated the square footage.” This new publication will hopefully be the start of many new discussions about the “size” of real estate, and the impact that size plays on the comparison and valuation of America’s real estate.
The “American Measurement Standard” is available at www.howtomeasureahouse.com . Any member of the Appraisal Institute (or who mentions they read this on AppraisalScoop.com) may receive a free copy via PDF by contacting [email protected] . AUTHOR: D. Hamp Thomas - Carolina Appraisers & Real Estate [email protected] Certified Residential Appraiser/CRS/CDEI/ABR/GRI/Realtor® The Measure Man, LLC www.howtomeasureahouse.com