Pricing Issues: Square Footage

Lloyd - Some counties are better than others when it comes to having accurate information about houses.  Here in New England, we're more concerned with "heated" spaces instead of "air conditioned" spaces!

Scott - No relation that I know of.  But if he lives near Newport I'll pretend to be related in exchange for a place to stay...

Eileen - I've seen some local MLS's that do not use square footage due to liability concerns - if a buyer finds out their new home is not as large as they thought, the can unfortunately become litigious.

Do your local appraisers measure the homes to determine square footage?

Steve - Your local customs may differ from national standards and guidelines.  That is acceptable, as long as they standard in your area.  I'm assuming what you call a bi-level home is what we call a raised-ranch in our area (enter the front door, and you have a 1/2 flight of stairs to go either up or down).

If the lower level of a bi-level is included in that home's square footage in your area, then that should be used by appraisers when comparing it to other bi-level homes.  If style of home is an important value indicator in your area, as it here in my area of Connecticut, then a bi-level home won't be used as a comparable sale for, say, a colonial home, without a corresponding value adjustment for style.  We typically use about a 10% price adjustment for style for a colonial vs. a ranch or a raised ranch (colonials are valued higher as they are the more desired style here).

And, yes, transparency is key.  I like to see in the MLS a comments such as:  "3,500 square foot home plus 750 square foot finished basement."  That's transparency.  More information and more disclosure better serve all of our clients.

Maryanne - Thanks for bringing the professional appraiser's voice to this post.  You are right - there are federal guidelines that appraisers must adhere to.  We need to teach real estate agents what these guidelines are so that we can avoid misrepresenting values to buyers and sellers.  Unfortunately, I find that many agents do not want to hear about federal guidelines.  That is something that brokerage firms need to take up with their agents.

Pricing a home is key for real estate agents - whether they are representing the buyer or the seller.  Square footage is a major issue in pricing.  By exaggerating that square footage figure by including basement areas that will not be factored in by appraisers in the same manner as above-grade areas is misrepresenting the home and potentially leading clients astray.  Misrepresentation of square footage figures can also lead to potential lawsuits.

Basement areas, and how they are factored in to a home's value, is something that is greatly misunderstood by many real estate agents.  More education is needed.  That's part of the reason I have completed all of my appraisal licensing courses.

Mary, I can't tell you how to proceed in your specific situation, as I am not a part of your transaction and may not know all the details.  There are actually a few issues here that you are dealing with.  However, I can provide you with some general information that may be of help.

A finished basement should not be counted in the assessment (or in an appraisal) as having the same value as the above-grade living areas of the house.  I just checked the online assessment database here in New Fairfield, and one home with a partial finished basement had that area assessed at $19 per square foot (this number may be and probably will be different in your town and possibly dependent upon the quality of the work).  The above-grade areas are assessed much higher.  So, the tax assessment on the finished basement should be lower than the tax assessment on above-grade living areas.

As far as permits, it is good that the seller is willing to now have the work permitted by the town.  This will relieve you from any potential future issues if the work is not done correctly or does not meet town codes.  You mention that the basement is an in-law suite with a kitchen.  Is this allowed in your area?  If not, it is possible the town may order it removed.  Does this make the home a two-family home, and is that allowed in the area?  If not, the town may order it removed.  Is the electrical and plumbing up to code?  If not, the town may order it corrected or removed.  Is the electrical and plumbing all behind finished walls?  If so, they town may order the walls removed so they may inspect the work.

Please notice that I've used the terms "may" or "should" a lot.  As I am not representing you in this transaction, I may not be fully aware of all issues.  Also, these issues are really up to the town building department and the town's tax assessor.

Here is what I would recommend:

1. Talk to the real estate agent representing you in this transaction for advice and direction.
2. Talk to the attorney representing you in this transaction for advice and direction.
3. Talk to the town's tax assessor to obtain additional information on how this may affect the home's property taxes.
4. Talk to the town's building department/zoning department (call town hall to find out who to speak to in your situation) to get their take on the situation.

Get as much information as you can.  Then you will have some choices to make:

1. Allow the seller to obtain permits for the work. Decide what contingencies are to be negotiated, such as contingent upon reassessed taxes not to exceed $X; contingent upon all permits being finalized prior to closing; contingent upon re-negotiation or contract cancellation if the town requires any modifications to the finished basement area; contingent upon any other issues that may potentially arise in your situation.
2. Determine what risks/costs you are willing to undertake for this home.  If this is your dream home, then you may be willing to take on some additional costs or risks. (for example, if this is your dream home, you may be willing to risk higher taxes...remember that our homes are usually reassessed every five years anyway, and taxes adjust (usually upwards) every year due to town budgets...)
3. As an aside, I purchased a new home, expected the taxes to be $X, and upon completion of the home, they ended up being $3,000 a year higher than I planned.  This was due to a recent town revaluation that occurred while my home was being built, and a new town budget - and thus a new town mill rate - that was higher than I was told by the assessor's office to expect.  In other words, when it comes to property taxes, there are no guarantees.
4. Determine what other issues may arise and negotiate now how they are to be handled.

Buying a home is both emotional and stressful.  Keep that in the back of your mind as you deal with these issues.  Remember to breathe.  Remember to breathe deeply.  Take a break from the issues for a few hours or even a day if needed, so that you can try to examine the issues again with a clearer head.

I hope this helps, and I of course wish you the best of luck with your home purchase.