Can a basement be counted as square footage? Should you include the basement in the square footage when trying to sell a house? These are good questions. I’ll give you a standard answer that will cover most basements, but then let’s dig into the issue since cookie cutter answers don’t always fit every property.
A Standard Answer: Basements should NOT be included in square footage according to Fannie Mae and ANSI guidelines. In short, if the area is below ground level, it doesn’t count as living space. This does not mean a basement cannot contribute to the value though. After all, buyers will probably pay more for a property if it has a basement – sometimes a substantial amount if it is dialed in as a man cave, office, craft room or layer for the teenagers. But no matter how nice a basement has been finished, it does NOT get counted in the square footage (again, it can still be counted in the value – but not as living space). The same holds true for an addition that is above grade, but not connected to the house. This means it probably isn’t a good idea to include the basement in the total living space when selling, but rather find a way to highlight the finished basement and house separately. One other important consideration is that buyers may not be willing to pay the same price per sq ft for a basement as they would for standard above-grade living area.
The Loophole: However, there are some funky cases where appraisers and the real estate community can deviate from this rule and actually include a basement in the living area. Let’s see what the Fannie Mae Seller’s Guide (PDF) says.
Fannie Mae’s Sellers Guide (pages 581-582): “Only finished above-grade areas can be used in calculating and reporting of above-grade room count and square footage for the gross living area. Fannie Mae considers a level to be below grade if any portion of it is below grade, regardless of the quality of its finish or the window area of any room. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count. Rooms that are not included in the above-grade room count may add substantially to the value of a property, particularly when the quality of the finish is high. For that reason, the appraiser should report the basement or other partially below-grade areas separately and make appropriate adjustments for them on the Basement & Finished Rooms Below-Grade line in the Sales Comparison Approach adjustment grid. For consistency in the sales comparison analysis, the appraiser should compare above-grade areas to above-grade areas and below-grade areas to below-grade areas. The appraiser may need to deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. For example, a property built into the side of a hill where the lower level is significantly out of ground, the interior finish is equal throughout the house, and the flow and function of the layout is accepted by the local market, may require the gross living area to include both levels. However, in such instances, the appraiser must be consistent throughout the appraisal in his or her analysis and explain the reason for the deviation, clearly describing the comparisons that were made.”
Why I counted a “basement” in the square footage: There are some instances where a basement can be considered square footage. This can be very tricky though and not every appraiser or lender will see it this way either. The truth is Fannie Mae does allow appraisers to deviate from the traditional below grade rule in certain cases. For instance, I appraised a property where the “basement” was the only level in the house that had any bedrooms or bathrooms (besides a 1/2 bathroom upstairs). The layout was definitely unique, but the city recognized the bedrooms and bathroom as square footage, and the market seemed to accept the space as living area in light of the previous sale on MLS. At the end of the day I could not argue against the market viewing this “basement” as living space, so that’s what I called it. Of course there is usually more than one way to solve a problem, which means I could have considered this area as a traditional basement while accounting for major functional obsolescence because there were no bedrooms or full bathrooms on the first level. But ultimately when looking at the whole picture, and especially the previous MLS sale helping to show how the market viewed this property, I chose to deviate from the traditional below-grade rule. I talked this over with my client and of course disclosed exactly what I was doing and why I was doing it in multiple places in the appraisal report. While it can be uncomfortable to make an unconventional call like this, I believe it was a reasonable methodology for this situation. I am very cautious about deviating from this rule though in most cases.
An Almost Example with Zoning: I can think of a quick example where I almost included a basement as living area. A highwater bungalow had a very nicely permitted additional unit below the main house. This addition was about two feet below grade, so it was technically a basement. However, this property sold twice on MLS as a duplex, and by all standards seemed to be a duplex – albeit a funky one. But there was at least one main problem. Zoning in this area mandated a duplex had to be located on a corner lot. Since the subject property was not located on a corner lot, it could not be considered a duplex per the planning department. This meant the subject property was really a single family home with a finished basement apartment (as opposed to deviating from the below-grade rule and considering the lower unit as living space counting toward the total square footage of the home).
The Main Point: There are unique situations where appraisers should legitimately consider a “basement” in the square footage, but the vast majority of basements should NOT be counted as living space (think 99.9%). Just because a basement is not included in the living space though does not mean it is worthless. If you are selling a home, the basement can definitely add to the total value. The key is knowing your market and studying sales with and without basements to determine what buyers are willing to pay for a basement.
Thank you to Realtor Luis Sumpter and Realtor Brian McMartin for the photos.
Question: Any stories, insight or questions? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
I like your blog and I’m glad that you went into the fact that Fannie has exceptions on above and below grade area. I recently appraised a property where the subject was a split entry (bi level) that was completely above grade (built on a slab) and all of my best comps were just slightly below grade because they were built on slight hills. I had to include basement above for a reasonable comparison or call the subject’s lower level basement. Otherwise, the adjustments were going to be out of control for above and below grade areas. The problem is that now Fannie monitors UAD stats, if an appraiser calls a comparable area basement on one appraisal and not on another, they are likely going to be flagged in the system and I don’t think Fannie has the man power to go thru and look at your comments in the report (like they say they will). The fear of the unknown what could be happening behind a curtain. I did make a video about this topic, but I left out Fannie: http://youtu.be/bxqbHadVyso
Thanks so much Gary. It’s always tricky in these situations and we have to really grapple with how the market views the property too. Fannie Mae certainly does want consistency, but of course we know appraisers and the real estate community may interpret unique situations differently.
All very good points, Ryan. It’s few and far between that I deal with properties having basements but this is good knowledge to have under my belt. Thanks
Thanks so much Gena. I hear you on not too many basements in our market. We just don’t have too many beyond the classic older neighborhoods. I’d love to see them come standard on newly constructed homes though.
Great post Ryan. I too had an unconventional property with a basement that I decided to look at in a non-traditional way. Even though the lower level was partially below grade I included it in the total gross living area for similar reasons as you explained. Thanks for sharing your experiences.
Thanks so much Tom. Sometimes we have to color outside the lines and take an unconventional approach. But really, it’s how buyers would view the property, so it’s not so atypical to a certain extent. I’m glad to hear we’re on the same page.
Hillside building that is going on in both Folsom and El Dorado Hills often see “walk out” basements that are considered finished living space by the builders and/or owners who have them built. Typically, its the only way to get the high cost of the building lots and the $65-85K permitting costs to pencil, lots of footage, as well as keeping the total height of the project below local zoning, which is about 35′, but tricky on a sloped lot.
One home we built with a 600 sf basement required an egress window with a ladder and shaft up to ground level in Sacramento County.
I would wish that checking for permits for all finished basements and attics was required… so many are sub par and out of code… the first photo is a great example. Beautiful new straps on an out-of-code water heater installation next to an out-of-code furnace….straps giving buyers a false sense of security.
Thanks Jeff. I always appreciate your take. From your recent Facebook posts, it looks like you are building something nice in EDH or Folsom right now. From a builder’s standpoint do you discount the “basement” square footage or do you tend to price the extra 600 sq ft the same as the rest of the house? I’d love to hear that, whether here or via email. It’s really interesting to hear about the height requirements and strategy for helping a project pencil out.
The bigger question is what constitutes “basement” space, and there does not seem to be consistency there (it is always a fun question for an appraiser training class, as with 10 students there will usually be 12+ opinions!). Appraising in the sierra foothills, there are few level building sites, and most properties are built on slope, frequently with some square footage below “grade” on a higher level. But, if the lower level has no bermed earth above floor level (ie there is crawl space behind it on the upslope under some of the upper floor), then is it basement space or not? And even with some bermed earth (say a foot or so) on one side wall, is this basement space, if it is full above grade on all 3 other sides? I have appraised properties here in the foothills built on upslopes where there is at least some bermed earth on at least one wall of EVERY living level- so is this a house 0sf of GLA, and just a whole lot of nicely finished basement? It seems to be an issue that is not quite black and white all the time.
Thanks Jack. I appreciate your scenarios. You bring up a perfect point too that there is often much to consider. Appraisers really have to think carefully over Fannie Mae / ANSI or the client’s definition of a basement, as well as know the local market. I tend to do most of my work in the ‘burbs where basements are a bit more straightforward. But even then, there are some funky situations that really need deep consideration. Your commentary illustrates how important it is too for appraisers to be in touch with one another so they can ask each other, “what do you think of this?” or “how would you handle this situation?”
A very interesting post and I think you are right in saying that overall, a basement adds a lot of value to a property. it offers more space after all and space seems to be a huge deciding factor. Do you think there is more weight on how a buyer views a property? Perhaps we need a clearer definition as to what actually constitutes basement space first.
Thanks Kayleb. Buyers will give more weight depending on what is really there. How useable is the space? What is the rest of the house like? There are so many factors to consider.
I’m building my own home but have stalled because of financing. I have self financed to this point. Daylight basement with two levels above which are dried in and sided. The county appraiser has for two years indicated that my one bedroom, kitchenette, one bath daylight basement is slightly more valuable per square foot than the on grade level and is also slightly more valuable than the 2100 square foot, nicely detailed, ranch style home built in 2014. 2 ARB hearings have not changed this blind man’s mind but it costs me dearly is tax theft every year. What do I need to do?
Hi Mike. Thanks for sharing your story. Are you asking what you need to do to convince the Assessor that the basement is less valuable (and ultimately not comparable with the one-level ranch home)? If so, your best best is to find comps that are similar to yours. If they sold for less than a home that is on level ground, then there is your support for a lower value. If they sold on par with the ranch style home though, then there is probably no difference in how the market sees your property compared to the other ones. The tricky part is that comps might be very sparse. Maybe you could hire a local appraiser to consult with you, measure your house, and put together some research. If it is there and is going to be used as living area, the Assessor will very likely tax you on the area just like any above-grade space. That seems to be pretty common, though obviously there is no hard and fast rule that will apply to every area in the country. Let’s keep the conversation going as needed. Feel free to comment back or send me an email.
Great info. Do you think the same general rule would apply to a rental as well as a home/business for sale. This feller says he has 3500 sq. ft. I asked him if he included the parking lot. My measurements on this 3 level a-frame, with the 5 ft. Rule came out to under 1600 sq. ft, leaving the basement out 1780 sq ft.
Hi WildWes. This rule applies for residential properties, but commercial may have different standards of measurement. The rule applies whether the residential property is being used as a rental or home business (assuming it is still a residential property of course, and that the property has not been modified by the business somehow). That’s a huge difference between your sketch and the owner’s estimation, so I hope you both can come to an agreement together by an objective third-party measuring. It might be prudent to hire a reputable appraiser in your local market to measure the house. Best wishes.
I purchased my house sept 2013 and the appraiser counted my bottom section of the house as my total square footage above grade. It is an additional Den, kitchenette hall way, full bath and 16×16 bedroom with two closets and french doors going to my backyard. All three sides of the downstairs is fully exposed and there is 2ft one the other wall to crawl space. I have added a paved driveway 24yds worth, cleared and opened my additional 1 acre lot added an 11x20ft porch and additional 10x 10 for the downstairs and updated all stainless steele appliances and bath fixtures and ceiling fans. I recently last week had an appraisal done on the house for refinancing purposes and this appraiser didn count the bottom section as above grade square footage(938SQFT) which came out to be 31,000 less than my previous appraisal….. Any thoughts???
Hi Wes. Thank you for sharing your story. It’s not always easy to gauge the value of an area that is below-grade. I believe I mentioned it above that appraisers can include a below-grade area as square footage if that’s how they deem the market views it, but they can also value it separately. I think either way could work, but the big question is how much the property is really worth. This is where it’s important for the appraiser to nail the value and get it right according to the comps. If the appraiser in this case did not count it as living space with the rest of the house, that does not mean it has to have no value. What value did the appraiser give to the lower space? That is a very big point to consider because this space is larger in size and could potentially really add some value. Check the appraisal report to see what value the appraiser gave and consider if that is adequate. It’s likely you would find some sort of an adjustment on the sales comparison grid (where the comps are located) that shows exactly what the appraiser adjusted for any below-grade area. If the adjustment is large, maybe it’s about the same as if the space would have been counted as living area. Or if the adjustment is too small in your mind, that’s probably something good to have the appraiser explain how the adjusted was derived. With that being said, it’s hard to say why the appraisal would come in $31,000 less than the previous one with all of the upgrades you did, though there are a few options:
1) The first appraisal in 2013 was too high.
2) The current appraisal is too low.
3) The market has declined since you purchased.
I know in my area the residential market has definitely increased in value since 2013, though there may be areas of the country where that is not the trend. Are you certain your value increased?
Recommendations:
1) Ask the lender to have the appraiser explain how the below-grade value adjustment was derived (maybe the appraiser explained it already in the report though).
2) Ask the lender to have the appraiser explain how the previous higher sale fits into his/her understanding of value for the subject property. Did it sell for too much back in 2013? Does the appraiser have any insight into why it is seemingly worth less right now compared to a sale in 2013?
I was really glad to read this and will bookmark it for reference. My home is partially under ground level and all the bedrooms and the full bathroom are in the “basement”. There is also a back door and that’s where the screened porch is – when you look at the house from the back it’s obviously two stories and the bedrooms all have big windows. But we keep on having problems with appraisals because of the “walkout” finished basement. As in the example above, if we don’t include the lower level as living space there aren’t any bedrooms and there’s only a half bath. All the realtors I’ve spoken with insist this is a one level with a “finished basement” but to me that isn’t a fair appraisal of the actual home we have. And when you look at the specs (1400 square feet – not including the “basement” that is equally as large as the top floor – 3 plus bedrooms, 1 1/2 baths) it’s obvious something isn’t right unless we have a “tiny home”, which this isn’t. The actual square footage is twice what is listed. And the bedrooms are finished just as nicely as the living areas upstairs.
Hi Susan. I appreciate your comment. It sounds like you have an interesting home (and not a “tiny home” either). It can be challenging to know when it is best to depart from the normative rule that says square footage should be above grade, but there are reasons at times. I’m curious if your house has sold at all in the past on the open market. If it has, and an appraiser can look up other sales at the time your home sold, I would be curious to see what the market paid for your home. Did it sell on par with other 1400 sq ft 3/1.5 homes? Or did it sell on par with a “tiny home”? If you are lucky enough to have some previous sales on MLS, it can in a very backdoor way help to show how the market has responded to the property historically. I know I felt very fortunate to have had this with the example I used in this post, and it was a critical part for me to be able to show definitively that the market was willing to pay for all of the space as gross living area despite being below grade.
Hi Ryan,
I just today got a notice of a reply but somehow missed the one you actually replied directly to me.
In answer to your question, I can’t say how the house was seen when my father purchased it about 34 years ago. By the time I visited (I was living in Vermont at the time), he had done quite a bit of work on the home, adding the screened in porch off the back, finishing the garage, etc. But the lower level had to have been considered because it has the only full bathroom, and at the time, the only bedrooms as well. When I moved here, we added a small bedroom off the kitchen by enlarging a tiny storage room by expanding it into the garage – leaving enough space in the garage for the car, work benches, etc. Because this room has its own entry from the outside through the garage, this became my son’s room.
When we had the home appraised to refiance about 5 years ago, the appraisal come in $55,000 less than it had 5 years previous. Of course the market had fallen in that time so I expected it to drop, but not by so much that pretty much all of our equity was gone. The “comparables” listed in that appraisal were pretty similar to camps. One, in fact, actually was on what looked like piles – you could see completely under the house. The other was very small and run-down, neither were any where near the size of this home, nor were they on as nice (or large) a piece of land (we have 4 acres). I know that land doesn’t add much value, and neither do views, but we have magnificent views of the whole mountain range from every window in the back of the house. There are more comparable homes to ours in town, but since we’re out of town, they weren’t able to be used. The same for homes just over the state line in NH, even though those residents go to Fryeburg schools (I live in Fryeburg).
After that horrible appraisal, I did contact the town appraiser to see what he thought. He agreed with me that we got a bad appraisal. But it wasn’t until later that I realized he didn’t count half of our living area as part of the house. It was simply called a “walk-out basement”. Nothing about bedrooms, the only full bath, or the quality of the rooms themselves.
Unfortunately, the market seems to be improving all around us, but where I am it’s still pretty flat with homes taking several months, up to more than 2 years, to sell. So we’re staying put for now. I do hope, however, that when we decide to move, we can find a realtor and an appraiser who will see this house for what it really is, rather than a one bedroom, 1/2 bath “camp”.
Thank you Susan. I appreciate you sharing your story in depth (and coming back to do so). I hope you can sell at a high price when you do go to sell. Being that your house is so unique, I might recommend being sure your agent is well aware of the potential issues beforehand. That might help the agent communicate well with the appraiser, search for true comps with a similar layout, etc…. If it’s useful, here is a communication form I recommend agents use when talking with appraisers: https://sacramentoappraisalblog.com/2014/10/09/a-cheat-sheet-for-agents-of-information-to-provide-to-the-appraiser/
Thanks Ryan! I’m saving this in a file to use in the future. When we got the bad appraisal I was unaware that our lower level wouldn’t be treated appropriately. Now I am and will make sure to discuss this with any realtor we work with in the future to ensure that the value of our home is as fair to us as possible. I appreciate your help.
Susan
I came upon this thread again today in a question I was reading from my email. I just wanted to update you on our home. We did sell it in late 2018. Within 2 weeks of putting it on the market, we had an offer, for what we were asking except they wanted us to cover up to $5000 in closing costs. We agreed. I was nervous about the appraisal because of the downstairs beds and bath. But the appraisal come in exactly where we needed it and the sale went through so quickly we barely were able to find a place to rent in NY state. Living in that house for 20 plus years, we found the downstairs beds were the best – much cooler in summer so less expensive to cool. Also since the bulk of the living space was not actually underground (just the furnace room and the bathroom – both of which had casement windows), you couldn’t even tell you weren’t above ground. People just have to be open to differences I think and judge them on their merit, not preconceived ideas.
Thank you so much Susan. I appreciate the follow-up. Congratulations too on the sale. That’s fantastic. It just goes to show a different layout may work very well for someone.
My wife and I are in a similar bind to Susan Lowry (above).
We’re building a contemporary, energy efficient “upside down” house. The design goal was to have a two-floor dwelling, but for energy efficiency (dirt’s the best insulator) and aesthetic reasons (two floors would tower) we sunk the lower floor 3 feet into the ground (still feet above water table, and we’re not in a flood zone). It’s part of the living space in every other way: connected to the “upstairs” living space via open stairs, finished to the same standard as the rest of the house (underfloor heating, 10″ ceilings, full height windows, same paint scheme, lights and fixtures). There are two bedrooms, a jack-and-jill bathroom, cupboards and storage “downstairs”, which makes it integral to the function and flow of the house. We looked at other contemporary designs that had taken almost identical approach.
At the time we applied for financing, the initial appraiser “got it”, and that report says we have a 3 bedroom, 2.5 bath, 2100 square feet, LEED certified house.
Upon refinancing, however, the next appraiser informs everyone we have a 1 bedroom, 1.5 bath, 1400 square feet house with a *very nice* basement.
Net difference? $250K in valuation (this is MA). And the re-financing got knocked back.
I completely understand the need for the guidelines, and appreciate the reasoning behind the “loopholes”. But it’s very frustrating when differing opinions knock $250K off the value of the place and make it impossible for us to take advantage of 5 points of mortgage interest rates!
Paul, I am so sorry to hear about your situation. It sounds like you have an incredible house. That is really a difficult situation, and I can only imagine the frustration you are feeling. Is there any potential to have the lender do a formal review of the appraisal? Or maybe ask the appraiser to reconsider including the area as square footage despite being below grade? As my post indicates, there is definitely room to deter from a typical rule that would only consider area above grade as square footage. There is such a value difference between a one-bedroom home and a 3 bedroom home. I hope you are able to find a solution here.
*stoic grin*
Indeed.
We’re talking with the lender about options (they were as shocked as we were when the second appraisal came in). And completely get the difference in value from a 3 bdrm to a 1 bdrm house (which is why we tried to build 3 bdrms in the first place).
Anyway Ryan … I have spent today reading the Fannie May guidelines (link: https://www.fanniemae.com/content/guide/sel062816.pdf, if anyone cares) and am better informed by posts like yours. Thanks!
P
Thanks Paul. By the way, it’s pretty impressive to have a LEED certified house (sounds expensive). 🙂
Our architect and builder joke that it is the most expensive one-bedroom house ever built.
I can only imagine. Hey, if you have any photos, can you send me a link? I’d love to see what you did. Maybe a private email (lundquistcompany @ gmail dot com). No pressure at all of course.
Fannie Mae and the guidelines are outrageously stupid sometimes. Almost all the houses in my neighborhood are build into hills (our neighborhood’s official name is the name of those hills, and no, not Beverly). The so-called basements of them all are entirely finished. The “basement” here has two bedrooms, a large living room, fireplace, full bathroom, and a walk-in laundry room. The bathroom is the only one without a window. There are windows on three sides, even though the laundry room is situated more into the hill than the living room. There’s still a window. The living room has French doors that open to the lower level of the three-floor deck out back. The so-called basement is over a third of the living area in this house. Not counting it as living area slices about $100k off the appraised house’s value, which caused some problems when trying to get a home loan. Our agent and appraiser both had to appeal to the bank on our behalf because the bank, by taking out the lower level, said the loan amount we sought was too much. The countable square footage divided by the loan amount was too high. Counting the “basement,” the per-foot was within the allowable guidelines. We were lucky and prevailed, though at a higher interest rate.
Levels built into slopes aren’t always these subterranean concrete blocks used for household storage, storing potatoes, and hiding from tornadoes. You say basement, and almost every American will think about a hole dug into a flat area of land that is storage underneath a house. Calling areas designed as living spaces “basements” just because they’re built into slopes can hurt families when the elitists at Fannie Mae and ANSI surely know that they are not. Like I said, we nearly lost our house because of their rule. We have neighbors who currently can’t sell at their home’s actual value because their house also includes a dedicated living area built into the hill. Two buyers have been unable to secure loans since the banks considered that space to be unlivable basement. They’ve removed their house from the market for the time being.
Sometimes lower levels are entirely legitimate parts of the actual living area of the house. Fannie Mae and ANSI really need to get with the program and realize that their stupid guidelines and rules are making it harder for people to buy homes based entirely on their believe that houses built into hills have non-livable lower areas.
Ironically, when I was a teen, my family lived in a house with an unfinished second floor (when the house was built, it was intended to be an attic accessible by standard stairs), and yet that second floor counted as living area just because it was above street level and was accessible with standard stairs instead of a trap door. It was, by NO means, livable. That counted as square footage, yet the “basement” here doesn’t….
Thank you for the comment ANC. I’m so sorry to hear about your situation. I find banks can be unyielding at times to the point where they are completely out-of-touch with reality. When we impose a rule on every property, it can be dangerous because the rule won’t fit every property. This is why Fannie Mae rightly says appraisers can deviate from the below-grade basement rule. There are absolutely times where the area is definitely considered living space. I actually encountered a house a couple months ago where I included the “basement” as living area. If an appraiser in your situation or another like it can help show the market accepts this area as living space, that’s golden. In your case it sounds like there will be quite a bit of data, so if the appraiser uses comps from the immediate neighborhood, that would presumably paint an accurate picture of value for the lender. If a bank still does not listen, that’s really too bad. Thank you again for the comment. I hope things go well for you.
We managed to get the house through a combination of the agent and appraiser going to bat and arguing to the bank why the so-called basement should count as living space, my mother-in-law gifting us $20k to put down a larger down payment, and the bank finally offering a higher interest rate. So we did get financially screwed since we’ll be paying more for the house. The bank tried arguing that Fannie Mae’s rules say, Fannie Mae’s rules say. It’s a stupid rule that puts the burden on the people who actually see a property when the rule should be more in line with is the space useable, in its current condition, as a real living area the same as the rest of the house, especially since you can have a floor of a home that technically isn’t livable that counts. The location in relation to street level is not a reliable indicator of livability. Absolute rules only hurt people, and those most likely to be hurt are those who can’t afford to pay big bucks out of pocket. We got extremely lucky that my mother-in-law’s father died when he did and that he had property worth money (yeah, how sad that this should be seen as “lucky us”?), and that we had an appraiser and agent both willing to put in overtime (and wouldn’t accept additional pay) to go in on multiple occasions to literally argue on our behalf. We would have lost this house because of a rule that is out of touch with reality.
I’m glad it worked out for you ANC. Thank you again for sharing your story.
Recommend everyone read HUD/FHA guideline 4150.2 paragraph 3-3 sub para b before you stop counting basement rooms as finished square feet. It gives appraisers specific measurements on window height, width and that they can’t be below grade before you summarily dismiss basements as finished square feet.
As a property owner with a walk out finished basement because appraisers won’t read the federal guideline, I and many other home owners are losing value on our property. If this is a Fannie Mae/Freddie Mac loan then follow their guidance but if a FHA or VA loan how can you ignore federal guidelines?
Thanks Allan. Do you have a more specific reference in the FHA manual? It’s nearly 150 pages and I cannot quite see what you are seeing with just that reference. Thanks.
Carter,
As of your post date (2/28/18) the handbook you reference is no longer. HUD/FHA guideline 4000.1 is the new standard; and I would love to find out specifically which page on the 4000..1 handbook breaks down what should be considered a basement.
Thanks Paul.
Hi Ryan. I am not an appraiser or real estate professional. I live in Ohio and own a home with substantial s.f. that is partially below grade. Our home lists as having less that 1,500 s.f. and only 1.5 bathrooms. In reality, the nicest space is on the lower floor. It includes an 800 s.f. family room, the outer half of which is surrounded by 13 windows, with french doors that open to grade; a 500 s.f master bedroom with fireplace and french doors opening up to a patio; a large master bath room, with shower and separate jacuzi tub; and another half bath off of the family room. Is there a strategy in dealing with appraisers to get them to consider the possible positions/adjustments discussed in this article. Thanks!
Hi Mark. Thanks for chiming in. I don’t know that there is one strategy to employ. I think we need to recognize first that it could be challenging to find comps and buyers may or may not pay the same as a 2,300 sq ft house (1,500 + 800). We have to look to the comps for the answers though, so if I had access to any sales that would help substantiate what the market is willing to pay for a layout like this, I would certainly share those. I would be curious to see if this property has sold a few times in the past also. If so, what was its price position in the market? In other words, how did it seem to fit in? That can be a clue for an appraiser sometimes. In other words, did the market pay the same as other 1,500 sq ft homes or did we see buyers seem to recognize this space as closer to 2,300 sq ft or so? In short, if you have any data, share it. But also be realistic that if you have something that might be a little unique that it could present some challenges for the appraiser to find comps. With that said, if every house has something like this, then we should be able to look to the comps for the answers. I suspect there are many basements in Ohio (right?), so there should be ample data for appraisers. That’s not always the case in California with basements. In your situation hopefully there are a few examples of tricked-out basements.
Thanks Ryan. I’ll dig a little and see what I can find. It’s actually more like 3,000 total s.f., with the 500 s.f. master bedroom and 200 s.f. master bath (in addition to the 800 s.f. family room). It’s certainly an atypical house, which may make comps a challenge. But it also is our best space and with lots of windows and french doors, there is sun all day in the two main rooms. Doesn’t feel anything like a basement.
Oh, got it. Well, that sounds complicated. It’s not always easy to decipher value when something is different. Hopefully it is different in a really good way. My sense from working in California at least is buyers tend to assign value to quality spaces, but when it starts to feel awkward as a layout or atypical in a bad way that’s when buyers really might not place this house on part with other homes of similar size. For your sake I hope there are some adequate comps out there to help tell the story of value.
Ryan
the below grade argument will never go away I guess. A decade later I just got a low appraisal on my listing on Marshall Way in Curtis Park. Huge high water bungalow with 1100 sq ft of below grade living space with bedroom and bath and family room. Appraiser says it’s only worth $120 a sq ft. It is so frustrating to try and rebut this but that’s where I am. Cheers
Hi Martin. Thanks for sharing. I’m sorry to hear about the situation. It can be difficult to figure out value with stuff like this, but any appraised value needs to reflect the market. What do you think it was actually worth? I’d love to hear. You can PM too if you want.