You are very fortunate to find this out BEFORE closing and not after. Obviously, your Realtor needs to get w/ the listing agent and agree to have the house re-measured for an accurate sq. ft. I'm surprised this is happening.. did the seller's add on or convert living space at one time?
Anyway, be aware that you may have to pay for the services for someone to come out and remeasure, but if you do find that YOU are in deed correct, in my opinion, I would not allow my client to pay for a house w/ false sq. ftge. It would be renegotiate time unless you are already stealing the home or you just can bear to go looking for any more.
There is a guy here in San Antonio that actually is certified to measure living sq. ft and he maps out floorplans.. you should consult w/ your Realtor to have him go out.
What a bummer...better finding out now than buying a pig in a poke as they say.
Anyway, first question is, what are the FairMarket Values (FMV) in the neighborhood? My thoughts are it will not be what was origianlly presented, as one major factor is the square footage. This would affect your offering price.
Secondly, who made the error...the owner or the agent who listed the property? If it is an honest error, then the asking price would need to change one would think.
If not, then modify the offer within the FMV for the sf and see what happens.
The listing agent should be plenty upset about this as their exposure to risk seems pretty big from your description of the situation.
Hope it works out for you and your family.
Christian Realty San Antonio
Your best bet is to contact your Realtor and voice your concerns with them. You may want to speak to a qualified appraiser about it as well.
Hope that helps.