Home : Blogs : Kristal Kraft ~Denver Real Estate~303-589-2022 : Denver Real Estate & Relocation

Bait & Switch

pow boxing gloves One of my associates is involved in a transaction where the sq. footage was reported (advertised) to be 12% more than it actually is. The unit being purchased is a cute little one bedroom condo rehab close to downtown Denver. The building has 15 units, 7 are currently sold.

Last week the listing agent sends over a disclosure for the buyer to sign, basically saying the builder is not responsible for anything. It says the sq. footage stated was merely used for "marketing purposes" and the buyer should measure personally to confirm.

Exculpatory disclosures are frowned upon in Colorado. Brokers used to use them to excuse themselves for doing all sorts of things. Every time a consumer would get mad about something that didn't happen, but should have that scenario would be covered in a "broker disclosure." Brokerage disclosures became full one or two page documents. Finally the legislature banished them.

OK, so why is a builder allowed to use such a document?

To make matters worse the appraisal (which validated the lessor sq. foot amount) is looking rather suspect. Values were reached, but the method used to reach them is not adding up.

This old nose smells a fish. A big fat stinky fish.

Builders, developers, rehabers whatever you want to call them should be held to the same standards we are all held too. Representation to the public should not be exempt from the truth.

So now what should the buyer do? Or rather now that the owner/buyer/agent knows a mistake has been made, what should they do?

In my opinion an adjustment is in order. The unit is less than represented, so should the price. If they can's see fit to making the proper adjustment, the buyer should be compensated for their time and trouble.

buyers don't sign away your rights
sign only State Approved forms
read the contract
be ready to walk away
report bad actors like this to the Real Estate Commission
hire an attorney ~ bad actors shouldn't be allowed to BULLY people

Bait & Switch is a bad way to do business.

Posted by Kristal Kraft ~Denver Real Estate~303-589-2022 on 04/02/2007 11:30 AM

Comments (43)

bait switch, bad appraisals, square footage

Originally posted at: Denver Real Estate & Relocation: Bait & Switch

This post has been included in Colorado Information Denver County, CO Information

43 Comments on Bait & Switch

APR

2007

We do not put a square footage figure anywhere on our listings in Maryland. Years ago, a listing agent got sued big time over a 3 foot mistake in calculating the square footage. Our board took square footage off our listings and now buyers get mad at us for not knowing or disclosing the square footage. Looks like the builder should make a big concession here! 12% OFF?

i agree with the above comment. The builder should make a consession on this for sure.

Patricia Aulson/REALTOR/SEACOAST/NH & ME

I agree... but so often buyers are misinformed and don't know their rights. Its all about education. It is our job to educate the consumer.

Great post... thanks for putting it out there for the public to read

The builder should not only give a concession, he should be forced to change his marketing materials.

You didn't say if the lender is the developer's mortgage company. If so, they'd better watch out - look at the Beazer suit over it mortgage company.

Our office was just discussing the square footage issue at our Monday meeting. Funny how this is such a prevalent problem in our industry...

I've been bothered by this since I've entered into real estate. In Ohio, builders are able to sell their own projects with hired guns and no licenses. Hence they have no cannon of ethics placed upon them by the state.

I actually wish they'd do away with that here too. Are they allowed to post "Approximates" vs. actual or none at all? I was always told that if someone advertises something - they had to deliver what was advertised or reimburse the customer (granted, this is real estate but you'd think the same principle would apply).

KK,

Okay I will play the part of the Villian and disagree. Don't shoot me till you read the HERE IS WHY !

In any given City in the good old USA you will find a variety of homes for sale in Different price ranges. One of the Builders I work with is Constantly looking at price per square foot.

It is NOT Relavant. If it was then there would not be such a vast difference in the sales price to square foot ratio.

Example : In a small geographic neighborhood in Portland called Mt. Tabor the Square Foot to Sales price ration runs from about $160 persqft to $214 persqft. I often times will see that as well in Condo projects or Townhomes.

Should all of those paying above $160 persqft be entitled to a refund ?

I will agree that there needs to be accountability, but Refund Based on Price Per Square Foot, NO !

This is a complicated matter. I would consider the following. This isn't the only condo in the building. If the other units are similarly priced and appraised, the fact that the square feet are off in one means that the square feet is off in all. So, the buyer will not be harmed because the comps are all the same. The cost per square foot will be higher than anticipated, but buyer rarely consider cost per square foot when buying residential property. I do and some agents do. Appraisers surely do, but it wouldn't be different in this unit than all the others.

As Debbie Cook said, we do not use square feet here. New home builders often list square feet in their brochures, advertising, etc.

If the builder gave a concession to one buyer for the error in the advertising material, they would have to give it to all. Further, the builder could easily simply correct the advertising material, which they should do today and simply show a higher cost per square foot for interested parties.

If it is a "cute little condo", the square feet aren't going to make any difference anyway. Question, is the buyer comfortable with the space in the unit because THAT isn't going to change no matter what is written.

Then it is always possible that someone else made a mistake and the square feet are more than advertised. I've seen that happen. Oops, forgot to include the foyer and the bathroom, laundry area, etc. Happens all the time.

Shucks. That wasn't much help was it??

Lenn the Contrarian

"It says the sq. footage stated was merely used for "marketing purposes" This statement wasn't disclosed until the disclosures were given for signature? So the listing agent knew it was wrong? This sounds really risky for everyone involved. Bait and Switch is right.

Dena - you took the words right out of my mouth. I may be a Rookie but if this property was advertised with a certain sq. ft'g and this disclosure wasn't disclosed until signature time - the builder is in breach of contract. That's of course an Indiana Law but ...

I started selling real estate in Tulsa. Everyone used price per square foot as a tool, not as the end all be all. It had to be weighed in total with everything else.

Then I went home to Kansas City. No one, and I mean no one, includes square footage in their listings. I find it to be a pain in the keester. I like the tool and wish we would use it.

But if you do choose to use it you need to understand that if three appraisers go to any given house they will come up with three different square footages. Just the facts of life. So if it's off a little here or there, you just need to accept that. Of course, a little off is not 12%!

I don't believe any of us like he rules changing in the middle of the game. Makes most of us feel "taken advantage of". What does the buyer want done? Are there any other homeowners in this condo complex that feel they've been wronged? More voices sometimes get more attention.

We do put the square footage on our listings but the next field is "source of square footage" which can give you an idea of its accuracy.

Personally I only use the square footage the city has listed.

As far as the disclosures, there isn't one that excuses someone from blatant fraud. It sounds like your agent has done their job, just renegotiate the price before you sign any after the fact disclaimers.

Wow! I Love it when you all come out to play.

Part of the problem with square footage is there is NO ONE WAY to measure it. In Colorado we have a disclosure stating The method used and where we got our measurements from. Colorado Square footage disclosure

OK so first we need to know the "method" of measuring. Then if we didn't measure ourselves we need to disclose where the actual sq. footage amount came from.

Most agents use the "Assessor's office" as the source. Of course we all know the assessor is always right...(cough cough).

This document gets signed by

Listing Licensee
Seller
Buyer

We are discouraged to sell by sq. foot. Yet read the appraisal. They DO use sq. foot as an element in determining value.

On this particular appraisal, it appeared the appraiser "backed" into the value. He was told what it had to be so he worked the numbers to make that happen. They don't add up.

As for giving the buyer a "refund". You can't give a refund until a purchase has been made. It hasn't. What has happened is the buyer has mentally "moved in." Furniture and appliances were purchased. Notice to leave a current home was given.

Granted emotional stress is hard to place a value on. BUT the buyer was sold something other than was represented.

I agree if all the measurements are off, the value difference will be a wash. The issue here is misrepresentation in the first place. Marketing materials should be as accurate as possible. Besides we aren't talking a 4000 sq. foot house here. This is a one bedroom condo. Measuring it is not difficult math.

So has it closed? Seems to me that the buyer should dig in her/his heels and be prepared to walk away if the builder won't make the price represent the size of the unit. Not that per square is a be-all-end-all as mentioned above, but if you're selling cookie cutter properties and one is the same as another, you need to be comparing apples to apples. Otherwise, when this buyer sells in the future, he/she will find himself in a bind when he/she can't use the excuse 'marketing purposes' when declaring size.

At the very least the Buyer should have the option of deciding whether or not to continue without financial penalty if they decide to cancel.

Here on my board we use a range for the square footage (less than 750, 751-1000, etc,) which gives the buyers an idea without being specific.

What bothers more is that Builders/Developers here in Ontario do not have to use licensed REALTORS® to sell their homes. If a Builder hires someone, that individual needs no formal training to sell the new Builder's home and does not have to face any license review if they screw up. That's just plain bad.

This builder doesn't measure up! If the builder has other units for sale -- I would reach a compromise -- otherwise, I think it will hurt the builder in the long run! Not a good business practice for sure -- it is fine if the builder mentions square footage +/- - but 12% is just too much of a variance.

On the other hand, What do you think the responsibility of the buyer agent and or buyer is when the materials said the square footage was for marketing purposes only? Does the buyer's agent and/or buyer have a duty to measure the square footage -- can they just stick their heads in the sand???

Interesting question here, but I don't think the buyer's agent and/or buyer are guaranteed success given what we know.

I had a buyer purchase a home that was listed at 1500 square feet. When the appraisal came back, it came in at 1100 square feet. All the agent could say was "Oops, my mistake". You bet it was, we got another $15,000 off the contract price for his mistake. No way was I going to allow my buyer to pay for feet that didn't exist. I eventually got the agent to admit he never actually measured the home. He took the measurement from the MLS when the home had been listed years before. Another case when you should not "clone" someone elses data.

Our purchase agreements specifically state that square footage, if important to the buyer, should be verified during the inspection period. While I don't condone in any way the builders approach to "marketing" (I can think of other words like "deceiving" that would better describe the practice) I would say that the buyer would have some personal responsibility at least here in MI.

I think Lenn's point that everyone else so far has paid based on the wrong info is interesting. Perhaps your clients could tell the builder that they plan on talking to the others if they do not find an acceptable resolution.

Kristal,

Very good post but I think you mean "exculpatory" disclosure not "escalatory".

JanDG

we don't list sq footage here in northern nj...too litigious in this part of the country. All of our marketing material is marked "Subject to Errors & Ommissions" and I guess that little line of text would put this whole conversation to bed. It's hard to determine if it was an attempt to be deceitful or just a mistake. Your buyer should proceed with caution.

Kristal....it amazes me what people will resort to and this kind of action by Realtors is another reason the public rates Realtors near the bottom with car dealers. I don't want to judge anyone but our work and honor is all we have. When we undermine others for our own personal gain it makes a statement of who we are and it always comes back to haunt us. Thanks for a great post.

Ugh. Not a pleasant situation. Square footage issues have reared their ugly head in many court cases. While we can put SF into our listings, many do not. And the majority of listings cite the assessor's record (which we all know may not be correct either). Buyers and agents are strongly encouraged to verify all information as part of the due diligence, and it seems there should be some responsibility in this case for the agent to have done so.

But it is disturbing that the builder is knowingly being deceptive, and likely has been in the past. And that deception seems to be the real issue. Doubt he will want other folks to find out, if the buyer should decide to go public with the other residents! It makes it tough on the buyer, who wanted the place based on seeing it and not, apparently, on the actual square footage, and who now is stuck having to decide if moving ahead, knowing what is known, is reasonable or not.

Jeff

Hmmmm... I think the builder should adjust the price. Interesting. Let us know what happens : )

We have a 4-5 page disclosure in Louisiana where the seller has to put the size of the living area and total and quote a source. The listing agent has the responsibility to measure and that is put inot the mls not as fact but as a guide line. In condos the issue becomes a little more complicated here as the builders figures and the appraisers are measured differently,The appraisers is always larger because of the method used,many put the smaller numbers in the condo docs. If the units or homes look smaller then the buyers agent should measure to see the exact size of the unit. If the builder used false info then it would be a crime in this state if the thought were to deceive. Did the listing agent know this and when did they know it?

It's amazing what builders can get away with here as well. Relo companies are amazing too. They are acting as attorneys and scratching out this part and that of the standard contract....

This is a common problem with builders. In most state builders are not regulated as real estate salepeople. They are large contributors to politacal campaigns and get special treatment by law makers. Square footage is a material fact and in most state such a misrepresentation is or should be illiegal.

Shame on them - I think your best advice was "buyers, be ready to walk away", most of these developers don't care and know people will buy them even with the discrepancy - it sure is a shame.

Folks, ours is a profession.
And a professional does the professional thing for their clients, always verify the measurements.
And if you don't know how or won't do it, well you see where I'm going.

If you talk the talk, you better walk the walk.

Stinky fish yuck...get out the Lysol. Who wants to bet the builder will not change the price on their own...any takers?

Kristal, I agree it does smell. This is wrong and the builder should be penalized for it.

Debbie ~ ouch a 3 foot mistake would rattle my cage! I can understand the state's reluctance to offer "exact sq. footage." 12% is a bit much, I do agree.

Patricia ~ We shall see if the builder owns up to the "mistake!"

Desiree ~ Yes, it is our job to educate and continue to assist the buyer. Funny though another buyer in this same building is unrepresented. Because this buyer IS represented and getting good advice, the unrepresented buyer is benefiting.

Sharon ~ I'm not sure if the mortgage company is an affiliate of the builder. I do agree the marketing materials should hit the circular file...now!

Jon ~ Prevalent due once again to our LACK OF STANDARDS.

Toby ~ Same is true here. Builders hire people of the street to babysit there projects. What is worse is when they make the consumer sign a paper that states, "nothing the on site representative says means anything." HUH? Why are they there? This is a huge disconnect and a bone of contention with me. On site reps have been known to say, "oh yes, that is planned to be a park." People buy homes for this reason. Grrrrr!

Jennifer ~ I agree the same principle should apply. The trouble is builders (or at least some) think they can make up the rules as they go along.

Herb ~ A price adjustment should be based on the fact that they misrepresented the facts. That is "bait and switch." I do believe there are laws prohibiting that.

Lenn my favorite contrarian ~ sq. footage aside, the brochure sold a bill of goods that does not exist. That is bait and switch. Not complicated, just wrong. ;)

Dena ~ thanks, you get it!

Jennifer ~ I don't know about breach of contract, but false advertising for sure. And now trying to Cover their (small donkeys).

Chris ~ so right 12% is more than a little bit. It is significant to cause concern.

Cynthia ~ Oh yes there are more buyers. In fact I bet before this thing is over most of them will be doing something about it.

Terry ~ Yes, the agent is doing a good job. The buyer is aware of the issues and will be demanding some changes.

Leigh ~ no it has not closed. I understand the buyer will dig her heels in and walk away if it comes to that. It this point she's not there yet. I love the "marketing purposes" excuse. Reminds me of all the builders who put signs out advertising their prices. I always tell people to add about $100k and the price will be more "in line" with reality. I'm usually close to being right!
This practice is another one that just annoys me so.

Suzanne ~ I don't think there will be a penalty. If the builder doesn't release her their will be more than a penalty, it won't be on the consumer's side that's for sure.

Wayne ~ Wow in Canada they excuse responsibility too? So sad.

Joan ~ The buyer's agent has not stuck her head in the sand. She's the one asking questions and getting answers. It's the builder's side that wants to step aside from his ethical responsibility of delivering what he claims.

Jennifer ~ Oh my, that is a very common mistake. Make it once and you will never make it again!

Maureen Francis ~ Lenn's point is interesting but in this instance is not the issue. Deception is the issue.

Jan ~ thanks for correcting me. I spelled it wrong and then didn't pay good enough attention to the spell checker. It picked that word for me...of course without my glasses on it looked pretty good to me! :)

Joanne ~ I understand all info is subject to errors and Omissions. Trouble is when someone hands you disclosures to sign that basically are covering the exact thing we are talking about, that is the time to hold the line and make them take responsibility.

George ~ you are so right. It saddens me too that people will stoop so low to be deceptive.

Jeff ~ I agree. I am hoping the builder will step forward and make things right, once he knows what a serious mistake this is. We shall see...

Kelli ~ I'll be keeping you all informed. ;)

Eric ~ I really don't know where the data came from. It could be either or both. Time may or may not tell.

Douglas ~ Builders do have very strong lobbyists. They have managed to swing so me laws into effect here in Colorado that are very non-consumer oriented.

Larry ~ I can't disagree with your comment, but the blog was about bait and switch, not measuring.

Paul ~ I hope you are wrong about the builder. :) We shall see.

George ~ I am actually hoping the builder will make it right, so he doesn't have to be "penalized." We shall see.

Kristal.... it just makes you wonder. The problem here is what Ines stated. Someone else will buy it. It will be interesting to see if they do offer any compensation. Keep us posted.

From the Arizona Association of Realtors' residential contract (big, bold letters are from the actual contract):

6b. 195. Square Footage: BUYER IS AWARE THAT ANY REFERENCE TO THE SQUARE FOOTAGE OF THE PREMESIS, BOTH THE REAL PROPERTY (LAND) AND IMPROVEMENTS THEREON, IS APPROXIMATE. IF SQUARE FOOTAGE IS A MATERIAL MATTER TO THE BUYER, IT MUST BE INVESTIGATED DURING THE INSPECTION PERIOD.

NEXT!

Sources for square footage on a listing can be assessor, appraiser, builder, owner or agent. Do I have concerns if I see anything other than assessor (except on new builds)? Absolutely. Is there a guarantee even the square footage from the assessor is correct? Nope.

The idea that the builder owes the buyer some sort of allowance strikes me as silly. Prove the offer was made on a price per square foot basis (and I know from reading RT this isn't a universal reality.) Are there any upgrades to this unit that could justify a different price than a larger unit? There are way, way too many variables to say with any certainty that the buyer is owed some money.

APR

2007

Hi Kristal, I'm not a huge fan of builders and how they do business. I've dealt with several of them with my clients and the contracts are always builder friendly, not customer oriented. I always advise my clients that they should be ready to deal with less than savory business practices and disclosures.

Some people really do not care. They just want new construction - period.

I think that buyers buy property, especially a smaller unit like a one bedroom, on how it feels to them. They don't buy it necessarily for the actual amount of sq. ftg. They will either see their furniture and placement there or they will not. As long as the agent prepares them that the information provided is skewed towards the builder and that the buyer can back out prior to releasing their contingencies, the buyer has the ultimate choice.

We had a situation like that here a few years ago. Now we have to put a statement on the MLS asking the buyers agent to verify all measurements.

APR

2007

When your client sells it, I'm sure square footage measurements will count when appraising the property and it will make a difference to the new buyers as well. This is a tough question and clearly not right.

APR

2007

KK,

what experience, well, but I just want to add something, with builders you need to review everything, everything they make are for their own interests.

APR

2007

Square footage is becoming a serious issue, especially in advertising.

There are definitely some areas of profound danger here - I think any industry is far better off policing itself than leaving an opening for legislation that would force compliance.

The NAR or local board of Realtors might consider setting standards that are required of all members - and appropriate consequences of violations. It is dangerous to wait.

APR

2007

I run into this from time to time on condos of all things. A quick check and we catch it up front. The point is they are doing it to mislead the public.

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