LAYING DOWN THE LAW
with
Christopher J. Charles, Esq.
Provident Law®
Square Footage and Real Estate Contracts
Many real estate brokers say that the top three rules for real estate are: (1) location; (2) location; and (3) location. But for the purpose of determining the value of real estate, another top consideration is the size or square footage of the property. This is true because the fair market value of real property is often determined based on a mathematical formula that includes the total square footage of the improvements as one of the necessary variables. For example, as of 2025, residential homes in several of the neighborhoods in North Scottsdale sold for an average of $1,000 times the total square feet of the property. So a 4,500 square foot home on a half-acre lot in one of these neighborhoods might have a fair market value of approximately $4,500,000.
Because the value of real property is largely determined based on the total square footage of the improvements and the lot, the accuracy of any determination of the square footage matters. Although uncommon, from time to time, the total square footage of the improvements or parcel is misrepresented by the seller and/or broker. And when the total square footage is overstated, once the buyer discovers the true square footage, the buyer may conclude that they overpaid for the property, especially because the total price paid for the property was likely negotiated based on the buyer’s understanding of the property’s total square footage.
Because the price per square foot is such a common methodology for determining the fair market value of residential properties, sellers and brokers commonly advertise the square footage of the property offered for sale or lease. This information is often included in certain print advertisements, including brochures, MLS, Costar, or LoopNet. (Also, an estimate of the square footage of most properties may be found on the county assessor’s website since the county assessor determines the real property tax attributed to each property based in part by the property’s square footage.)
The total livable square footage, or heated square footage, refers to the total area of a building that includes only the finished spaces that are heated. The livable square footage seldom includes the garage(s)(unless it is heated).[1] The livable space is sometimes referred to as the finished living space, and this space will always be less than the total square footage of the improvements.
Conversely, the total square footage, or total underroof square footage encompasses all areas under the roof, including heated and non-heated areas under the roof, areas such as garages, unfinished basements, and even covered porches.
So what claims or remedies might a buyer have if the seller and/or the broker misrepresents the square footage of the property? For the reasons that follow, in many cases, as a practical matter, the buyer has no strong claims or remedies against the seller or broker concerning a misrepresentation of the square footage.
First, a brief summary of the buyer’s potential claims against a seller and broker concerning overstated square footage of the property. Often times the buyer’s preferred claim against the seller concerning a misrepresentation is a claim for breach of contract.[2] So if the contract includes a representation and warranty from the seller that the seller has accurately disclosed all information concerning the premises known to the seller which materially and adversely affects the consideration to be paid by the buyer, then the buyer may argue that the seller breached the contract by violating that representation and warranty. But sellers often have at least one compelling counter argument or affirmative defense to this claim – namely, most purchase and sale agreements today, including the standard form AAR Residential Resale Purchase Contract, include language similar to the below paragraph:
Square Footage: Buyer is aware that any reference to the square footage of the premises, both the real property (land) and improvements thereon, is approximate. If square footage is a material matter to buyer, it must be investigated during the inspection period.[3]
As a result of these provisions concerning square footage in most real estate purchase and sale agreements, buyers are typically precluded from bringing any breach of contract claim against the seller for misstatements made concerning the square footage.
But what about tort claims? Plaintiffs’ attorneys argue that disclaimers such as the paragraph listed above, do not grant the seller or their broker a license to actively conceal or falsely represent facts material to the transaction. It also does not permit a seller or their broker to advance or promote information they know to be false to the buyer. In other words, plaintiffs’ attorneys argue that contract language does not immunize the seller from claims of intentional, fraudulent representations. Knowledge of conditions contrary to those set forth in a writing, such as a listing or purchase contract, may lead to a claim for negligent misrepresentation at best and possibly, even fraud.
A party to a transaction has a duty to disclose information if she knows that the other party is under a mistake as to basic facts: “A duty to speak … will be imposed on a party to a business transaction if he knows that the other is about to enter into it under a mistake as to [facts basic to the transaction], and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts. If a party has such knowledge, then a duty will be imposed to exercise reasonable care to disclose such facts to the other party.”[4] In Arizona, this is “especially true when [d]isclosure would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if nondisclosure amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.”[5] A seller cannot use a disclaimer regarding an approximation of square footage to engage in a misrepresentation about basic material facts he knows to be untrue.
Also, in the Elm Retirement Center case, the Court of Appeals rejected the argument that a seller’s representations cannot be contested in tort claims notwithstanding contract language to the contrary. For example, the Court of Appeals stated:
Elm argues that affirming the dismissal of its claims would mean that ‘no seller would be compelled to comply with purchase contracts or any common law requirement of truthful disclosure regarding square footage’ and that ‘no plaintiff can pursue an Arizona lawsuit where a seller and the seller’s real estate agent agree to falsely misrepresent and hide the square footage of a house.’ Not so. We merely hold that when the contract contains no express warranty of square footage and to the contrary, expressly warns the buyer to verify any representation about square footage, the buyer may not state a claim for breach of warranty based on an alleged extrinsic statement by the seller about the size of the property.[6]
This cautionary language expressly authorizes causes of action other than breach of warranty or breach of contract arising out of misrepresentation and concealment. The Court of Appeals has not immunized parties or brokers who deceive and conceal facts regarding square footage.
But if buyers are only left with tort claims concerning any misrepresentation of the square footage, then the issue of materiality of the misrepresentation and reasonable reliance are at issue. And if the contract includes language that expressly requires the buyer to agree that it is not relying on the seller’s representations of the square footage, and if the buyer agrees that if the square footage is material to the buyer, then the buyer will conduct its own due diligence to confirm the accurate square footage of the property, then the buyer may have a tough time persuading the trier of fact that the square footage was a material issue and that she reasonably relied on the seller’s approximation of the square footage. And to complicate things even further, if the buyer is financing the purchase, then the buyer’s lender will order an appraisal which will include the appraiser’s calculation of the square footage of the property. If the appraiser’s calculation differs from the seller’s calculation, then it may be impossible for the buyer to credibly argue that she reasonably relied on the seller’s calculation of the square footage and not the lender’s appraiser’s calculation.
On the other hand, per Barnes v. Lopez, where the seller makes a positive distinct representation as to the condition of the property, the buyer is entitled to rely on the seller’s representation and has no duty to make further inquiry.[7]
PRACTICE POINTER: The accuracy of square footage calculations is an important issue in virtually every real estate transaction, whether the buyer is dealing with residential property, commercial property, a purchase transaction, or a lease. So buyers will do well to confirm the correct square footage of the property, taking note of the difference between the total livable square footage and total underroof square footage, as well as the square footage of the parcel. The best possible due diligence available to the buyer is to order an appraisal and ask the appraiser to complete a “full appraisal,” rather than a “drive-by appraisal” or “desk appraisal.” A full appraisal involves an on-site inspection of the property, including an interior inspection, to provide a comprehensive valuation. Conversely, a drive-by appraisal involves an appraiser inspecting the exterior of a property without entering the premises, often used for refinancing applications. And a desk appraisal involves an appraiser using publicly available data and information from the homeowner or broker to estimate the property’s value without an onsite inspection.
If you or someone you know needs legal advice or representation concerning due diligence or other matters relative to a real estate purchase transaction, or help resolving a real estate dispute, call, email, or visit us online today to schedule a consultation with Mr. Charles or one of our other real estate attorneys.
Christopher J. Charles is the Founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). And Mr. Charles serves on the State Bar Real Estate Advisory Commission. In 2017, Mr. Charles obtained one of the Top Ten Civil Verdicts for his client in a real estate dispute. Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at Chris@ProvidentLawyers.com or at 480-388-3343.
[1] Note that many luxury homes today included garages that are cooled and heated by the HVAC, so in those cases, the garage may be included in the total livable square footage if the garage also includes finished floors and walls.
[2] Unlike tort claims for misrepresentation, fraud, or negligent nondisclosure, breach of contract claims provide a basis for the recovery of attorneys fees. And comparative fault does not apply to breach of contract claims.
[3] See AAR Residential Resale Purchase Contract (rev. 2022), lines 225 – 227.
[4] Alaface v. Nat’l Inv. Co., 181 Ariz. 586, 595-596 (Ct. App. 1994) (internal quotes and citations omitted) (emphasis added); citing, Frazier v. Southwest Sav. and Loan Ass’n, 134 Ariz. 12, 17-18 (App.1982); quoting Restatement (Second) of Torts § 551 (1977).
[5] Alaface v. Nat’l Inv. Co., 181 Ariz. 586, 596 (Ct. App. 1994) (internal quotes omitted).
[6] ELM Ret. Ctr., LP v. Callaway, 226 Ariz. 287, 292, at ¶ 24 (App. 2010) (emphasis added).
[7] Barnes v. Lopez, 544 P.2d 694, 697, 25 Ariz.App. 477, 480 (App. 1976).