Now that you know why the exact square footage of your home matters, it’s time to make some money with the discrepancies. Buying a home with the wrong market square footage can be profitable.
Every homebuyer is a real estate investor, whether they realize it or not. I always encourage homebuyers to buy a home with lifestyle first and profit second. However, this does not mean that the focus should not be on economic benefits as well.
The main reason I’m writing this article is because I discovered an opportunity to earn up to $260,000 through a real estate broker’s lack of attention to detail.
Malicious listing agents can cause great damage to sellers. On the other hand, a good listing agent and a smart buyer who pays attention to details can make a lot of money.
How to Profit on the Wrong Square Foot House
The opportunity to spot anomalies is one of the reasons I prefer investing in real estate over stocks. With enough leads, not only can you find a deal, but you can also use soft negotiation tactics to save even more. With stocks, there is no opportunity to influence the stock price.
Here’s a basic framework on how to make a profit on a house with incorrect square footage. If you find an exploitable contradiction in real estate investing, it’s worth considering.
Official square feet are those square feet recorded in the tax records of the assessor’s office.
The vast majority of homes sell for square footage equal to or greater than the area data from the county’s official evaluator’s office. Your goal is to look for the opposite.
Why are the market square footage of homes lower than the county assessor’s office data?
Most likely due to negligence, carelessness or ignorance of the listing agent or seller. Even the Building Inspectorate consistently approves of inconsistent floorpans. Honestly, it’s unlikely that the more recent lower square foot measurements are to blame.
As a seller, there are many reasons why you might overlook area discrepancies. You may be busy with other errands and leave everything to your listing agent. So you were unaware of this important contradiction. But details matter.
The listing agent may have used the numbers on the latest renovation architectural drawings. If the renovation was approved by the inspector, there would be no reason for the listing agent not to trust the architect’s square footage.
However, the listing agent should also compare the architect’s or appraiser’s square footage to the county assessor’s office square footage. If your most recent reading is significantly lower (10% or more), you should re-measure. With such a large difference in area, error made.
2) Buyer should do due diligence
The greater the difference in square feet, the greater the potential profit for the homebuyer. So your job is to compare the square footage sold on the market with the square footage recorded by county assessors for as many attractive homes as possible. Every city has an Office Of The Aessor-Recorder website that you can visit. here in san francisco.
In general, the bigger the house, the less likely it is to feel or notice the difference in area while walking around the house. If you want to make the most money on a house based on the square foot difference, find the largest house you can find.
An example of a $2 million potential profit for a house with the wrong square feet
For example, let’s say you walk into a 10,000 square foot mansion for sale with 10 bedrooms and 8 bathrooms. Most people can’t tell the difference between 9,000 square feet, 10,000 square feet, and 11,000 square feet. In other words, there could be a plus or minus 10% square foot buffer that most people are unaware of.
If the house is marketed as 9,000 square feet, but the county official size is 10,000 square feet, you get a 1,000 square foot advantage. If your neighborhood has an average selling price/sqft of $2,000, you could theoretically make a maximum profit of $2 million (1,000 X $2,000).
Accurate measurement of small characteristics is also important
On the other hand, let’s say you walk into a 1,000-square-foot, two-bedroom, one-bathroom house for sale. Given that square feet are much smaller, most people can tell the difference between 900 square feet, 1,000 square feet, and 1,100 square feet. For example, if space is even more limited, a 900-square-foot home that’s 10% smaller than advertised might feel very different.
However, even though it’s only 900 sq ft while the market is officially selling 1,000 sq ft, and you’re only getting a 100 sq ft advantage, you’re still making a profit. . Let’s say the neighborhood’s average selling price per square foot is $500. Buy it and get up to $50,000 in immediate home equity gains.
3) Sign the contract and buy the house after everything is checked out
The final step in making money from the difference in house square footage is buying a house.
Before you buy, you should measure your house yourself and have it measured by an appraiser. Once you’ve made sure the habitable square footage of your home is larger than what’s marketed, buy it, taking all other contingencies into account.
If you want to sell your home, all you have to do is list the larger square footage of your home based on the square footage your county assessor’s office has. You can then provide the seller’s disclosure of floor plans and square footage by an independent appraiser or architect if renovations have taken place.
It’s not your fault that the previous seller sold a lower square footage than the reality. Just like new buyers should do their own due diligence in measuring square feet under the “warning emptor” rule, you did your due diligence too.
The square foot discrepancy is a bonus, not the main reason
Finding the difference in square footage is not the primary reason to buy a home. The main reason to buy a home is because you have found an affordable home that improves your quality of life. Walk around the grounds and feel that the size of the house is worth the price.
You should follow home buying guides like my 30/30/3-5 rule so you don’t overdo it. In addition, we need to analyze the housing market and make predictions about its financial health and future economic health.
Buying a house with more square footage than advertised is a bonus. When you succeed, you feel like you’ve closed a deal. You may still get a buffer if house prices drop after you buy.
Many people buy a home based on how it makes them feel. But as a savvy financial samurai, I want you to look for opportunities based on contradictions. They are not mutually exclusive.
Why Some Homes Don’t List Square Feet
It is common practice to list the square footage of a house on the MLS. However, some realtors don’t like this as it invites scrutiny, especially if the residence has a lot of unlicensed spaces that can be disguised as habitable spaces.
Even if the seller clarifies the source of the square footage and emphasizes the warning, there may be potential buyers who mislead the square footage discrepancy even after agreeing to the disclosure.
Imagine a situation in the final stages of closing when a buyer writes a price concession letter asking for a discount for closing. Once he’s 60 days out of the deal, the seller may just surrender rather than redo the whole process.
Heck, I wrote a letter of concession on the price of my existing house just because it’s getting colder! It was July 2020 and the restrictions due to the pandemic were still in place. I would like to spend a little more money and have a more comfortable stay. The seller was unfazed and instead sent a letter to his lawyer to force me to proceed.
Size discrepancies make housing more expensive
Selling a home is a much more stressful process than buying a home. Therefore, the more candid the seller can be about housing issues, the better. If they find a buyer who will accept their home after making all the disclosures, the seller will be more confident that their home is actually for sale.
If you are a buyer, we hope this article has helped you find new ways to shop with confidence. With so much money at stake, there are often psychological hurdles that buyers must overcome before buying a home.
In a bull market, buyers have to overcome real FOMO. In a bear market, buyers must overcome fears that home prices will continue to fall after they buy. There is no downside to doing more due diligence when it comes to buying a home.
If you are a seller, we hope this article has helped you avoid getting your home priced wrong by an inexperienced real estate agent. Proper pricing can make or break a deal.
Notice the details! If you do more than your opponent, you can make more money.
Reader Questions and Suggestions
Have you ever noticed discrepancies between the marketed square footage of your home and the actual square footage based on your tax records? If so, what was the reason for the discrepancy? Why don’t more sellers, buyers and real estate agents pay attention to these details?
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