This article was written for Usaj Realty compliments of Gary Ashton, a realtor in Nashville, Tenn....
Square Footage Discrepancy | Appraisal vs. Assessment
Whether someone is buying or selling a home, having the right square footage for the listing and the contract really does matter. And one common issue in the transaction process is discovering the square footage determined by the appraiser is not the same as the assessor's. Then what happens?
In today's sellers' market, this issue may be the least of your worries as a prospective homebuyer. However, as real estate prices rise and fall over time, having the accurate square footage of your home can be an important piece of your home's future value.
When these two figures do not match, buyers and sellers can argue over the price of the house (and potentially other factors) that can then lead to a problem with getting the home into the "sold" column. So what can buyers or sellers do if the square footage comes back different from what was expected? And should they try to do anything at all? That depends on the size of the discrepancy, who it favors, and whether it significantly affects the value of the house or the terms of the contract.
The Assessor is Basing Their Figure on Tax Information
The assessor bases the square footage of the home on tax information they receive from the county, city or other agency. They use that information to identify how many square feet are found in a particular dwelling, but they don't verify that information by measuring the house or otherwise determining whether the square footage provided is correct and complete. For sellers, that can be a problem if the tax information is wrong. It can also disadvantage the seller if there is an undocumented home addition that isn't showing up in the assessors' square footage. Buyers will think the home is smaller than it really is, and that could mean they don't want to look at it as a potential option for purchase.
Appraisers View Space Differently; Some Areas Don't Count
When having the home appraised, the report may actually indicate a lower square footage than the tax assessment. That could be from the appraiser not counting certain areas that the tax information may include. Appraisers generally don't count garages or unfinished spaces, and they may see certain rooms as not being used the way they are listed or intended. If an appraiser determines that a home is smaller than what is listed on the tax information, a buyer might feel as though they are not getting the value they anticipated. The seller of that home may also be upset, because an "undersized home" may dissuade a potential buyer.
Having Different Square Footage Could Work in Your Favor
Depending on whether a person is the buyer or the seller, having different square footage information from the appraiser could be an advantage. Sellers want the appraisal to show more square footage because that raises the chances that the house will appraise for the value of the contract. Buyers want the square footage to be higher because that means they're getting more house than they expected. But a larger square footage number can come with some disadvantages, too. One is that the tax assessment may go up, and that might increase the buyers' property taxes every year. While that won't always happen, the possibility exists that it will. For that reason, buyers may prefer that the appraiser not increase the square footage. As long as they are happy with the house at its current size, the discrepancy between the tax information and the appraisal information may not be a factor at all.
Some Additions May Not Have Been Permitted Correctly
One of the reasons that an appraisal may show a square footage discrepancy is when there have been additions to the house of which the assessor is unaware. This can happen when records haven't been updated, but it can also happen if a seller has done unpermitted work. That lack of permitting can keep tax assessments lower while a seller lives in the home, but once that person decides to sell, they may find that they aren't able to get as much for their house as they would like.
If there has been an addition on the house and a building permit wasn't obtained, the house assessment wouldn't include this information and, as a result, will appear smaller. Consequently, the appraisal square footage may be lower, too. It also may leave the buyer with concerns about the undocumented work and other potential underlying problems. If there is a big discrepancy between the assessor and appraisal square footage, it is generally best to determine the reasons why that is the case and how to remedy the situation.
So, what should buyers and sellers do? Sellers should make sure that they document all additions and improvements, to be sure. They should also make sure all work is permitted. At the end of the day, this is a situation that you will want to discuss with your real estate agent, whether you're a buyer or a seller.
There's no one-size-fits-all approach to delicate real estate quandaries, and that's when having a professional on your side comes in handy. Your buying or selling advocate will have the experience to understand where you might go next while protecting your interests in the process.
This article was written by Gary Ashton, a realtor in Nashville, Tenn.
(Editor's note: This blog was originally published in August of 2019. It has been updated to reflect new information and trends).