The three most important factors that determine a home’s value are; location, square footage, and amenities (number of bedrooms, bathrooms, garages, porches, decks, patios, finishes, etc.). Of the three, location is the most important with square footage being the second most important. Knowing the square footage of the home is particularly important to most all buyers since it provides them with a convenient (although not always accurate, as you will see in this article) method for them to estimate the value of the home in comparison to other properties. Although neither the North Carolina License Law nor the North Carolina Real Estate Commission, require the reporting of the square footage of a home for sale, it is nonetheless common practice among Realtors to report it because of its widespread use among buyers (and Realtors) dividing the asking price by its square footage to arrive at the price per square foot of the property. Therefore, for the accuracy of measuring and calculating square footage, it is essential that Realtors follow the Residential Square Footage Guidelines endorsed and adopted by the North Carolina Real Estate Commission and the American National Standards Institute, Inc. (ANSI) when measuring and calculating the square footage of a home.
When Realtors input the square footage of a home in the Multiple Listing Service (MLS), the two most common mistakes made by new or inexperienced agents are representing finished basement square footage as “above grade (above ground) square footage”, and finished basements and rooms with ceiling heights less than 7’, in the home’s overall “living area” (total heated/finished square footage). An important factor in accurately reporting square footage in MLS is distinguishing between “finished square footage”, “unfinished square footage”, and “living area”. In order for the total square footage to be accurately represented in MLS as “living area”, it is required to have a heat source and be finished, and have a ceiling height of at least 7’, to be counted for marketing and advertising purposes to prospective buyers.
In summary, you may be thinking so what does this mean to me if I’m thinking of buying a home, or selling my home? It comes down to basically three things. First, if you are thinking of buying or selling a home with a basement, then any “living area” below grade (below ground) has less contributory value in comparison to the home’s above grade (above ground) square footage. In other words, a home’s basement below grade (below ground) square footage is worth less than its above grade (above ground) square footage. And, if the basement is finished and heated, it is worth more than a basement that is unfinished and not heated. Second, if the home you’re thinking of buying or selling has any rooms with a ceiling height of less than 7’, this square footage cannot be included as “living area”, regardless if it is heated and finished. In this case, it still may have some contributory value, but its value will essentially be treated by appraisers as a finished attic or as a finished basement storage area. Last and most important, since most buyers obtain a loan when purchasing a home, their lender will send an appraiser out to appraise the home when it is under contract, and the appraiser will not give the same amount of value for finished heated basements and rooms with ceiling heights less than 7’ than they will for an above grade (above ground) finished and heated square footage (living area). In other words, the appraisal may come in less than the contract price causing the buyer’s financing to fall through, and thus the sale.