Does Square Foot Source Affect Sale Price?
If you are a real estate agent you may want to stick around and read this to the end. The source of square footage information that you use in your listings could possibly affect what you sell it for.
If you use county tax assessor information as a square footage source in your listings you may want to rethink this. I recently did a study to see how homes sold based on where the agent got their information from and I have to say what I found was intriguing.
My findings are interesting given the fact that most agents price homes based on price per square foot. What I see most of the time is the agent taking the square footage of the home and multiply it by a price per square foot range that they get from MLS sales.
What could go wrong you say? Besides the fact that a list price should never be based on only one metric (like price per square foot) you run into the problem of sales stats being tainted due to bad data.
If only one metric is used (which it should not) the data that it is based on better be accurate. You may be familiar with another service that uses inaccurate information, have you ever heard of the Zillow Zestimate? I thought so.
Four Different Sources of Square Footage Data
The Greater Alabama MLS, of which I am a member, provides the source of square footage information that is included in the listing. The four sources include tax records, seller, building plans, and appraiser.
This is not an exhaustive or scientific analysis but a simple study of the basic information provided by the MLS. The reason I did this was to see if there was any correlation between the source of square footage data and how long it took to sell a home as well as what the final sale price was compared to its original list price.
If a home is priced accurately it should sell for very close to its original list price and it should sell within a reasonable period of time. If the square footage is not correct then it is very easy to price it wrong which can result in it taking longer to sell and for it selling lower than the original list price.
Where Do Agents Get Their Data?
If you take a look at the pie chart below you will see that almost three-quarters of the homes listed use county records for the source of square foot information. Seller provided information comes in second with appraiser information and building plans coming in third and fourth.
While it is quicker and easier to use county tax records for your listings I do not suggest it. Taking time to get more accurate information will most likely provide you with the best chance of selling the home close to list price and within a reasonable amount of time.
In a market like we are in now where there is limited inventory with good demand you may not notice a big difference, however when the market slows it is even more important to price your listings using the most accurate information possible.
What Can The Sale Price to List Price Ratio Tell Us?
As I said previously if a home is priced accurately and to the market, the final sale price should not be too far off from the original list price. If a home is not priced well it will probably require price reductions to entice buyers which will result in the sale price to original list price ratio being lower.
To get this ratio I took the final sale price reported by the MLS and divided it by the original list price shown in the MLS. Please note that I said the original list price.
This is important because it gives a more accurate indication of how much, or how little, the price needed to be adjusted. If you divided it by the final list price it would not give an accurate reflection of any price reductions that were necessary.
The chart below shows the sale price to list price ratio from each of the data sources.
Listings that used building plans as the data source sold for the highest percentage at close to 101%. I believe these listings sold for higher than list price because they are typically new construction. The original list price is usually a base price and the final price reflected upgrades to the base price. This may not be true for all of the listings but I do believe that this influenced a large number of them.
The next highest ratio was the appraiser source of data with seller and tax records trailing behind. This is interesting because as I noted previously most agents use tax records for square footage information.
If you are using tax records as the source of square footage in your listings they may be selling for less than you could get with a better source of data. Because tax records are usually wrong the list price may be based on inaccurate data.
If you use incorrect square footage and the list price is too high it will require more price reductions and there will be a bigger gap between the final sale price and the original list price.
Days on Market
The last metric I looked at was the days on market or how long it takes to sell a listing. If you price a house too low it will sell very quickly and if you price it too high it will take longer than necessary.
The listings that used building plans as the square footage source took longer to sell. Again, I believe this is because most of these homes are new construction and the listings are usually entered when construction begins. The days on market is more an indication of how long it takes to build the home rather than how long it took to sell.
The county tax records and seller supplied information took about the same length of time to sell at 60 and 62 days. Appraiser supplied data had the lowest days on market.
Because appraiser supplied square footage is the most accurate, homes using this data are typically priced more accurately. Because it is priced based on more accurate information it should sell in less time.
Keep in mind that information provided by sellers may be accurate as well if they got the information from an old appraisal. It goes without saying that tax records are the least accurate and should be avoided as much as possible.
Conclusion
The information I looked at in this study included all single-family home sales in Jefferson County from January through November of 2018. Based on this data it appears that the listings that use appraiser data as the source for square footage information sell for closer to the list price and they sell quicker.
What does this mean if you are a real estate agent? It means that if you normally use tax records for your square footage information, you could possibly sell a $100,000 dollar home for approximately $3,000 more if you utilize square footage information from an appraiser.
This is based on the findings above where the homes selling with appraiser data sold for approximately 97% and those using tax data sold for 94% of list price. You could also sell it quicker, helping to save on marketing costs.
If I can answer any questions you have about floor plan sketches for your listings feel free to contact me and as always thanks for reading.
“If the square footage is not correct then it is very easy to price it wrong which can result in it taking longer to sell and for it selling lower than the original list price.”
I feel like you are assuming that any difference in MLS listed GLA vs actual GLA errors on the high side. Wouldn’t there be an equal amount of incorrect data which errors below the actual GLA thus potentially increasing the List/Sale % and decreasing the DOM in those cases?
Thanks for your comments, Evan. You are exactly right and I have witnessed this as well. I recently did an appraisal where the agent under quoted the square footage and the home sold for less than what it appraised for. Both situations an occur if the square footage is not correct and that is why it is very important to make sure that it is correct.
Might be interesting to verify how assessor’s are required to measure in your state. As appraiser’s, I suspect we all realize we should be measuring by ANSI Standards. In the State of Wisconsin, which is actually municipally assessed as opposed to county assessed, jurisdictional assessor’s are supposed to rely upon instructions for building measurement contained in the Wisconsin Property Assessment Manual. In essence, only the first floor is measured. The “second” story GLA is derived as a function of eve height. Without complicating this, there are photos in the manual displaying eve height relative to the top of the first floor. Based upon this, the area is considered either an attic, 1/2 story or second story. While 2 story dwellings display a second level GLA equal to the first floor area below, attics and 1/2 story dwellings are factored at 50% and 75% respectively to the area of the first floor they are above. Needless to say that while Ranches are typically more accurate, a multi-level dwelling appropriately measured by an appraiser virtually never matches assessment records in terms of GLA.
I’ve discussed this on more occasions than I can recall with local Realtors as both a municipal assessor as well as a fee appraiser. As an assessor, I don’t necessarily care as long as everything is uniform allowing for appropriate model calibration. As an appraiser, we try to “get it right”. I have found the typical “cop out: for Realtor’s to be potential law suits. However, at least in Wisconsin for the most part, if you haven’t personally inspected and physically measured your comparables and you’re necessarily using assessment data relative to multi-level dwellings, it’s extremely likely you’re comparing apples and oranges. I believe that, in any market, if agents and appraiser’s got on the same page as to how to appropriately measure a dwelling and, short of plans or a prior recent appraisal, MLS systems required agents to measure accordingly for MLS data purposes, appraisal quality could be significantly greater. Of course the odds of this occurring are likely greater than the odds of my winning the lottery this week.
Thanks for the input, Mark. I’m glad you pointed out the process that assessors, at least in your area, go through to obtain square footage calculations. I’m sure for purposes of assessment that may work to a degree but as you point out appraisers need to get it right. The square footage for ranch homes are a little more accurate in my area as well but beyond that, it is hit or miss. I try to educate agents in my area as to which type of house is more accurate in square footage in the assessor’s records but I still see them using tax record information for the majority of their listings. I agree that if we could all get on the same page it would make for a more accurate appraisal.
As an appraiser, the 2nd story CAN be difficult to measure accurately if you don’t do them often- also basements can be difficult. The ins and outs of the 2nd floor, how big is the storage area in the garage, and air over the stairs all can be confusing. What is and what is NOT sq footage is important. An appraiser measuring a big house can be crucial. A small house with a few turns can be measured accurately by anyone, even the tax guy.
I agree, David. Agents in our area do not measure ANY of their listings due to a lawsuit years ago. This is one of the big things I talk about at agent’s offices. I communicate the importance of accurate GLA and the best places to get it.
I agree with Joe. Very interesting. Does your MLS do a survey on square footage? I’m curious to know where you are getting the pie chart data. Thanks.
Ryan, our MLS has an area for the agent to put what their source of GLA is. As I noted in the post, I sorted the sales based on the source of square footage and then looked at the sale price to list price ratio and days on market of each group. I take it your MLS does not have a place for agents to do this?
Tom and Ryan,
I think we can do the same analysis in Sacramento. I suspect that results will be different because we don’t have basements. I sent your article to a friend in Portland OR because he has a lot of issues with reliable GLA data. Will be interesting to see what Abdur finds
Basements are an issue for sure but I also find that for half stories the accuracy is hit or miss. I would be interested to see if Abdur has similar results in his market.
This is a very interesting study. RMLS, the local MLS for Portland, has a field that allows for similar tracking. I’ll make this a future blog post for Portland Appraisal Blog and link to your article.
I would be very interested to see if what I found is true in other areas as well. Can’t wait to see your blog post, Abdur.
Agents do identify where the square footage came from. I am not sure it is really a searchable field to scrape data from. I’ve never tried though. Most homes in my area are taken from Tax Records, and Tax Records are much better here than your market I think (from what I’ve heard from you over the years).
Our MLS allows us to modify some reports and I was able to include the source. I then downloaded the report in a CSV format for analysis in Excel. Some tax records are decent, such as one level garden homes with no basement. When you get into multi-level homes with basements it starts getting wacky.
Tom,
Really interesting, original post. Never thought of this analysis before. Well done.
Thanks, Joe. It was something I thought might be the case and that was verified when I looked at the numbers. I would be interested to see if this is true in other markets as well.