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How public record errors hurt real estate sellers
Real estate buyers today often turn down a listing because they think it's priced too high relative to the livable square feet it has to offer. In some neighborhoods, like planned unit developments, price per square foot might be a fairly reliable value indicator because there is little variability in the housing stock. It's of limited use in neighborhoods with great variability in home style, size, age and condition.
Regardless of what the sellers report as the livable square footage, the buyers usually want to know what the public record on the home says. For example, if the sellers say their house has 3,000 square feet of living space, but the public record reports only 2,300 square feet, the buyers expect an explanation for the discrepancy.
It's not only prospective buyers who are concerned when the public record differs from what is reported in the multiple listing service. Due to recent lender tightening, many appraisers consider only legal square footage, that can be verified with a building permit, to establish valuation.
Owners of homes that were added onto over the years without the benefit of building permits from the local planning authority could end up with a low appraised value. A lender will lend only a certain amount (usually 80-95 percent of the appraised value).
If the price on the purchase contract is much higher, the transaction could fall apart unless the buyers put down more cash or the sellers lower the price, or both.
A low appraisal might not cause a problem if the buyers are making a large cash down payment. If they make a 50 percent cash down payment ($150,000) for the purchase of a $300,000 house and the house appraises for $250,000, the lender will likely lend up to $200,000 with 20 percent down, or $50,000. However, if the purchase contract includes an appraisal contingency, the buyers could withdraw without penalty based on the low appraisal.
HOUSE HUNTING TIP: The information reported in the public record is often wrong. Before you put your home on the market, find out what the public record reports on the characteristics of your home and try to correct any mistakes that could work against a sale.
In California, properties are reassessed for property taxes based on renovations and additions done legally, with permits. Often, the local assessor's office will update its record but the information doesn't get into the public record that is accessible by real estate agents, buyers and appraisers.
In one case, a couple had purchased a vacant lot and architectural plans from the previous owner who couldn't afford to build. The couple then added more than 1,000 square feet to the plans and built a bigger house.
The public record showed a 3,600-square-foot house, which was the size of the house that was originally planned. The Certificate of Occupancy issued by the City of Oakland Planning Department reflected the larger 4,800-square-foot house that was built. Armed with this documentation, the appraiser had no problem appraising the property for the purchase price.
Sometimes when an addition is made to a home, the public record is not amended to include the additional square footage. In Alameda County, Calif., a seller can visit the Assessor's Office and ask for a copy of the Property Characteristics Report on their home. If it's not accurate, the seller can request that changes be made.
Mistakes in the public record aren't confined to livable square feet. The public record also includes information about such things as the number of total rooms, the number of bedrooms and bathrooms, and whether there's a garage.
THE CLOSING: It can take months for changes to show up in the public record, so start working on this early.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."
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