I hear agents and brokers tell me quite frequently…”but, that’s common practice.” Just because something is so-called “common practice” in any industry, especially real estate in South Florida, does not necessarily mean it’s legal and/or ethical. For instance, it is “common practice” for listing agents to manipulate square footage data in the MLS, which is unethical and completely skews statistical data, i.e. price per square foot.
Per MLS guidelines, when an agent places a property in the MLS, whether it is a condo or a single-family home, the agent is required to input the living area square footage, total area square footage and the adjusted area square footage. Believe it or not, these are 3 very different numbers.
Living vs. Adjusted vs. Total Area:
- Living Area: Area within the property that is under A/C (air conditioned space)
- Adjusted Area: Living Area + 50% of terrace/balcony and garage space
- Total Area: Living Area + ALL terrace/balcony and garage space
When buying property, buyers depend on comparables (“comps”) to calculate what other homes in the area have sold for. This gives a buyer the information needed to calculate the type of offer to make on a specific property. The actual sales price of a comp is important, but price per square foot is more important.
It Happens Every Day…
Let’s say you find a home in Coconut Grove that you want to purchase, but you are not sure what kind of offer to make. Well, there is most likely not a comp down the street exactly like the home you want to purchase (wouldn’t that be easy) to compare it to. So, you look at beds/baths, lot size, year built, and most importantly, the square footage of the home you want to purchase and compare that information to other homes that have sold recently in the immediate area. If the home you want to purchase is 6,000 square feet (Living Area) and the price is $6,000,000, the price per square foot the seller is asking is $1,000.
If a similar home (beds/baths, etc.) sold down the street for $900 per square foot, you would assume that you should offer $900 per square foot for this purchase. But wait, what square footage did the agent down the street input into the MLS to calculate that $900 figure that just closed? You MUST make sure that you use Living Area of the comp down the street for an apples-to-apples comparison.
Let’s say the comp down the street closed at $7,200,000 and the square footage in the MLS is 8,000. Simple math says it sold for $900 per square foot. But what if that square footage is actually Adjusted Area, not Living Area? The actual Living Area turns out to be 6,800 square feet…making the actual price per square foot of the sale $1,059!
So, you use $900 per square foot to make your offer on that dream home in Coconut Grove (because your agent is uneducated with this process) which makes your offer $5,400,000. The seller is offended at your low-ball number and completely rejects it. You think the seller is crazy and unrealistic, and the seller thinks you are crazy for trying to “steal” the home at an unrealistic price. Negotiations break down, and you never get your dream home.
Had your agent done his research on the comp down the street and realized it actually closed at $1,059 per square foot, your dream home’s asking price of $1,000 per square foot would be completely realistic and actually a bit underpriced. You make an offer close to $1,000 per square foot (realizing you’re still getting a deal) and live happily-ever-after in your dream home.
Obviously, happily-ever-after might be a stretch, but you get my point. 2 completely different outcomes all as a result of the agent you chose to work with as a buyer.
The most accurate way to gather the square footage of a home is to look at the architectural or floor plans. I understand that is not always an option, so the next place to look is on the tax roll. Sadly, even though the information is there for everyone to see, listing agents can still manipulate the MLS data, using the larger number (Adjusted or Total Area), to make their price per square foot look lower than it really is and, unfortunately, buyer’s agents usually don’t double check this data for their buyers.
There is no loyalty owed to an agent just because they showed you some properties. If you, a buyer, feel that your agent is not experienced/knowledgeable enough to educate you when making the purchase of your largest asset, find another agent!
UPDATE March 21, 2017: I have received several calls from fellow agents that are not very happy with this article, for obvious reasons. I want to clarify something, though price per square foot matters, it is not completely cut and dry. Just because a comp closed at “X” does not mean you offer “X.” Luxury properties do vary by quality of construction, location and the “1-of-1” factor (very special/unique). In the case of luxury properties, other factors should definitely be taken into account in addition to price per square foot. Therefore, it is even more important to work with an agent who can navigate these factors and help you make the right financial decision.
If you, or someone you know, are interested in purchasing real estate in South Florida, please contact Michael Light, Director of Luxury Sales at Douglas Elliman. You may reach me at (786) 566-1700 or via email at email@example.com.