Truth in square footage
We have written several articles over the years pertaining to quantum of land, square footage and the buyers’ obligation to make sure the house is everything (or mostly everything) they want it to be. A recent decision from the Oklahoma Supreme Court identifies some issues that licensees need to consider.Buyers were living in a one-story home containing “approximately” 1,398 square feet and were looking to buy a bigger house. Sellers had a two-story house they marketed as containing “approximately” 2,890 square feet. Sellers listed the property for sale, including the square footage, in the MLS. The property was listed at $149,500 but Buyers and Sellers agreed on a price of $145,000. Shortly after settlement, Buyers received a copy of their appraisal from their lender and noted that it showed the house having 2,187 square feet or “approximately” 25 percent fewer square feet than Buyers expected.
Buyers sued the Sellers, listing broker and listing agent under a theory of fraud. Buyers learned that several years before listing the property for sale, Sellers had the property appraised and that appraisal showed the home having 2,468 square feet. Sellers and licensees argued there was no fraud because the local tax assessor’s office identified the property as having 2,890 square feet. Sellers and licensees asked that the suit be dismissed on the basis that there was no evidence of fraud and even if there was fraud, there were no recoverable damages. Buyers appealed and lost and then appealed to the Oklahoma Supreme Court, which reversed both the trial court’s and the first appellate court’s decisions and sent the case back for trial.
The licensees argued that they were justified to rely on the square footage identified by the tax assessor’s office. They argued that the MLS listing contained the language that the “information is deemed reliable, but not guaranteed.” They argued that the terms of the agreement of sale, which contained language similar to the PAR Standard Agreement of Sale, clearly stated that the buyers understand they purchased the property as is – and in doing so released the licensees from liability (the Oklahoma agreement contains a specific provision for square footage); the release was intended to survive settlement. The licensees even argued that the lender’s appraisal (the one that showed the property having only 2,187 square feet) valued the property at almost $147,000, so there was no financial harm.
The Supreme Court was not persuaded by any of these arguments. The Court concluded that buyers are entitled to rely on positive representations made by sellers and their agents regarding the property’s size. According to the Oklahoma Supreme Court, representations about square footage are statements of material fact and not expressions of opinion; therefore, a buyer does not need to independently verify the truth of those statements. If buyers later claim they were victims of fraud, then it is for the jury to decide if fraud was committed and if buyers suffered compensable damages because of the fraud. The Supreme Court was even willing to allow the Buyers to present evidence that they calculated their offer based on a dollar-per-square-foot, even though the agreement of sale was silent on the method of calculation.
The Real Estate Licensing and Registration Act (RELRA), the regulations and the Real Estate Seller Disclosure Law in Pennsylvania, along with some recent case law, might provide Pennsylvania licensees with some protections in Pennsylvania that were not available to them in Oklahoma. But the Court was not deciding who was right and who was wrong; rather, the Court determined that the decision on liability was appropriately left to a jury. A similar result could occur in Pennsylvania. The Court’s conclusion that representations about size are “material facts” is a valuable lesson. If a Pennsylvania court were to reach the same conclusion, then listing agents and sellers should take care before representing square footage or quantum of land. Certainly a licensee who bases the square footage on tax- or other public records might reference the source of his information (some MLS’s have a field calling for the “source” of the square footage where “public record” can be inserted). Of course, such a finding would also heighten a buyers’ agents’ responsibility to their clients to ascertain how much size matters and to take steps to protect their buyers accordingly.
The decision of the Oklahoma Supreme Court is not a binding precedent for Pennsylvania, however, our courts can find these conclusions to be constructive. Remember, there is no industry standard on determining square footage; exercise caution when identifying it.