Can you include it in the square footage? I get questions like this almost every week. Is it okay to count an accessory dwelling in the living area? What about a pool house? How about a man cave or she shed? Let’s talk about this.
The straight dope: It’s tempting to lump something else in the backyard into the square footage, but that’s not appropriate per ANSI measuring standards. Basically if you have to walk outside of the house into something else that is not directly accessible to the house, we’re really dealing with something that isn’t considered to be a part of the main house. So we call that something else a studio, casita, accessory unit, pool house, she shed, or whatever. It’s just not the main house, which is why it’s not included within the square footage.
New video: I made a video to talk through some things to watch in the fall market. Enjoy if you wish (or watch here).
An Example: If you have a house at 2,500 sq ft and an accessory unit at 1,200 sq ft, it isn’t a 3,700 sq ft house. No, this is fundamentally a 2,500 sq ft house with something else. Could it be worth the same amount as a 3,700 sq ft house? Maybe. But if we only compare this type of home with other 3,700 sq ft units, we haven’t really proved what a 2,500 sq ft house with a 1,200 sq ft accessory unit is worth. The best comps will be other homes with accessory dwellings, right? Heck, maybe it’s worth even more. But we’ll never know unless we find the right comps to tell the story of value. The quick “comps” are all 3,700 sq ft, but those might not be the best representations of value.
The problem: If a property is priced based on a lumped square footage, what happens when the appraiser gets out there and needs to use smaller-sized comps that are consistent with the actual size of the main house? Is there going to be a difference in value?
The truth: It’s not an easy pill to swallow when the appraiser doesn’t include the extra space in the square footage, but just because it doesn’t count in the square footage doesn’t mean it doesn’t count in the value.
But they’re lumped together in MLS: I know, this happens all the time. A property will be sold with a lumped square footage of the main house and the pool house. We even see this happen at times in Tax Records. Let’s remember a few things: 1) The way a property is marketed doesn’t change what a property is; 2) As a non-lawyer I wonder if there is increased liability for representing a home at a larger size than it is (hopefully there is an asterisk that clarifies what the square footage represents); 3) The appraiser is very likely going to treat the two areas differently instead of lumping them together.
My advice? Instead of quickly pulling larger “comps” right away, try to isolate features such as a pool house, accessory dwelling, or outbuilding to determine what they’re worth in addition to the value of the main house. In other words, what is the main house plus the extra thing in the backyard worth? That’s the math market equation we have to figure out and it can be done by pouring through lots of data. Finding a few examples of homes that have sold with that feature is the ideal so we can try to discover what that feature commanded in terms of value. Sometimes we might even look through years of sales too. Remember we might not use really old sales as comps, but we can certainly use them for research.
Resources:
Q&A on accessory dwellings
Tips for valuing ADUs
Using older sales is sometimes the best option
Can a basement be considered square footage?
Anyway, I hope that was interesting or helpful. Thanks for being here.
Questions: Any stories to share? What follow-up questions or insight do you have? Did I miss anything?
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You said ” 3) The appraiser is very likely going to treat the two areas differently instead of lumping them together.”
It’s relevant to point out that this is likely the lender’s appraiser working under guidance from FNMA, the lender, or both. This is important because, no matter what anyone else thinks or says, this is how the property will be treated when it comes time to sell or refinance.
Thank you Mike. I appreciate it. I was careful not to use absolute language because I can’t guarantee an appraiser will do this even though I think that’s completely appropriate. I’ve certainly seen examples where appraisers lump the square footage together and then I have to explain why the house is not actually 4,000 sq ft.
This question gets asked to me daily. I just got done answering the question if a finished area in the garage can be included (accessed only through the garage), so I forwarded your blog to that person as well.
Thanks so much Gary. Yes, this is an incredibly common question. I’ve been asked multiple times over the past two weeks, so I figured I would scratch out some thoughts.
Love your comment about realtors just listing it with a combined square footage on MLS and providing comps to sellers and pricing it that way. It is a disservice to the seller and to the buyer as well. It does take more time to comp those homes and I appreciate you taking the time to explain that.
Thanks so much Jon.
What a very clear and concise explanation. Thank you Ryan!
Mr. Kevin Cooper!! Great to hear from you. Thank you.
Excellent as always Ryan. I especially liked the Market Trends Report. Crazy times!
Thank you so much DeeDee. I really appreciate you. These are crazy times indeed.
And it is common for assessor office data programs to force the GLA of all buildings on the site into a single GLA that gets forced into ZILLOW or when the lazy realtor just does a data import from county records, they bring in unreliable data and dont double check.
Or the lazy appraiser who doesn’t want to find matching comps and we follow behind and have to explain to the mad realtor that the appraisal 2 years ago saying it was 3,000′ is really 2,000+1,000 and is in a different market segment and your realtor handbook of xxx/foot cant apply in this case and its not really worth what you think.
Thanks Mark. It’s not a happy time for owners when they realize their home is smaller than advertised. That’s for certain.
Yes, sometimes the assessor record shows such a mistake !! That is why assessor records are a poor source WITHOUT speaking with the owner or agents !!
Thanks Truett.
There is ‘an asterisk that clarifies what the square footage represents’, at least, in the Paragon and BAREIS MLS’s. It’s a field called ‘Source:’ (for square footage source) or ‘Sq Ft Source’, respectively. I don’t know if there’s a field like that in the Metro MLS? You can put ‘Public Records’ or ‘Measured’ or ‘Owner’, e.g., for the source. Of course, if it’s fudged in the public records, I guess you’d need another asterisk.
Thanks Michael. I definitely appreciate the asterisk too. I can understand an agent advertising a lumped square footage too. While I’m not a huge fan of the practice, if the agent has at least clarified in MLS what the square footage represents, that’s helpful.
Great topic, Ryan. This issue never goes out of style :). Of course, the reason people want to lump them together is that it pumps up the value. Something I suggest to agents or owners trying to understand value is to look it the past to see how the particular house sold compared to other homes. Like you mentioned, you may not be able to use the older sales but you use that data to see how it compares.
Thanks Tom. I just touched on this topic not long ago, but I felt I needed to circle back in light of so many questions lately. I appreciate your comment. I think in real estate for owners it’s sometimes easiest to see what we want to see rather than what is there. With that said, appraisers better be sure the way they say the market sees the property is truly how the market perceives things. 🙂
Thanks Ryan, our appraisers find themselves cleaning up other appraiser’s messes when they do an appraisal this way, but it was done the wrong way before. Although, my impression was ANSI is not the reason, rather, a GSE requirement. ANSI doesn’t work well in Seattle since ANSI measurements would eliminate the top story of most old houses in the the City of Seattle. Our house got appraised, it was a duplex, and the appraiser said he couldn’t count one unit because the ceiling heights weren’t high enough, because of ANSI measurements. There is no rule in our area that requires appraisers follow ANSI, and, as you can see, a black and white measurement method
can cause some issues.
Thanks Brady. This is a great comment and I’m glad you made it. While ANSI is useful and/or the standard for so many, we certainly need to be in touch with the market. If we claim to reflect the market, we probably need to reflect it by knowing how the market views square footage in areas where homes may color outside the lines. There is a line of course because if your ceiling was 3′, then I’d agree with the appraiser. 🙂
When we apply a rule absolutely, we can sometimes actually miss the market. The same thing happens with walk-out basements that are clearly square footage (even Fannie Mae allows appraisers to deter from there below-grade rule). Thanks Brady.
Thanks ryan !
This can apply to finished attics and/or basements as well.
Thank you Elizabeth. Agreed.
Thanks Ryan. I was recently reported to the state by someone (not even the client, but the client’s brother) because he insisted I include the detached “guest house” (actually a glorified shed I described as a bunkhouse) in the GLA. I will be interested to see how the state responds.
I’m sorry to hear that Deborah. I hope the state is reasonable and simply throws out the complaint.
I’m sorry to hear this.
I had a situation recently where the listing agent is representing that the property is 4500 sq ft (it is actually a 3200 sq ft home with 720 det grtrs) but he absolutely flew off and has screamed & yelled and telling people that i am a bad appraiser because i didn’t add the two sq ft togther. And per him (not an appraiser) there is “no rule” that says it has to be measured separately…..
Small town – of course, he’s right, I’m wrong no matter what i say.
Thanks. Glad to know I’m not alone!
Ryan, your assertion is not correct 100% of the time. Sometimes it depends on local custom and how your peer appraisers appraise similar properties. In the Coachella Valley California (Palm Spring area) Almost all Realtors include the detached casita’s as part of the total living area. Per zoning casita’s are not legal as a second unit since they are not zoned to have a kitchen or separate utilities. Also the Riverside County assessor only reports the total living area which also included the detached casita.
See the following comment I use in my appraisals of homes with a detached casita;
“The subject property has a detached casita that is heated and cooled. The casita is not separately metered. The detached casita is not considered an accessory unit since it has no cooking facilities or separate utility meters and is not zoned as a separate living unit and is not legal to have a kitchen or as a separate rental unit. I reported the living area as a total area which includes the casita in the living area. The way I presented the living area is not technically the correct way to account for a casita for FHA or conventional loans. However local custom dictates that in our market this is the way that detached casita’s are accounted for in the local market. USPAP does accommodate a deviation from the ANSI living area calculation standard when local custom dictates a deviation. It is my professional opinion that the appraisal as presented is less misleading and a more typical presentation of the facts for the subjects market area. None of the sales data as reported in the MLS or the public records reports casita?s as separate living area when a property is zoned as SFR. The public records/builder reports subject property as having 4,064 square feet. To report subject square footage at 3,504 square feet and a separate casita could be misleading. Also most of the time the MLS does report a separate casita, but always includes the casita living area as part of the total living area without reporting the square footage of the casita, since casitas are an amenity that buyers value in this market. However sometimes Realtors don?t note that part of the living area is a detached casita but only report the total living area including the casita. Public records never reports separate area for casita and the main living area, public records only reports living area inclusive of the detached casita. It is quite possible that some of the comps did have detached casita?s included in their living area but were not reported this way. For this reason the most accurate way to report living area is the way I reported it in this appraisal which is to include the detached casita living area as part of the total living area. Over the years I have performed several hundred FHA & conventional appraisals done the same way as this appraisal and these appraisals are acceptable to FHA and FANNIE MAI because the guideline does allow for deviation since the ANSI standard does allow for deviation. Please refer to the ANSI standards for calculating living area. In conclusion in my professional opinion the appraisal as prepared by me is correct and USPAP & ANSI compliant since it is less misleading for the way market data is presented in our local market. For this reason the living area reported includes the detached casita. All six comparable sales have detached casita’s included in their living area and none of the comparables public records or MLS report the square footage of the casita, but only report total square footage.”
Thanks. A comment from an appraiser in Seattle said something similar. I wouldn’t argue with a different market and I would defer to other professionals for how it works in their area. This is of course the problem with applying any one rule universally. It’s also why conversation can get pretty interesting when talking with appraisers from around the country. Ultimately there are some guidelines out there, but there is also the local market.
Ryan – first of all, so glad you’re doing better and back to posting informative and insightful subjects. Of course, every time I see “assessor”, I feel I need to clarify any misconceptions. A common question or complaint from taxpayers at the Sacramento Assessor’s Office is “why isn’t the square footage of our second residence or ADU included in the building information posted on Parcel Viewer or in the data available to REALTORS?” In the past, only the primary or main residence was listed. A few years ago we made changes that now include the “total living area” of all residential units on our Parcel Viewer website tool. Note that we do not use the term “Gross Living Area”. They are two different terms, and we respect that. Also note that we include a total count of bedrooms and baths in all residential living structures on a single parcel. In addition, we indicate a “residential building count” and a unique Land Use Code. If the former indicates “2” buildings and the land use code indicate “2” living units – that should be clue to the public, appraisers, lenders and brokers that this not just a single-family residential property. Like everything else the “devil is in the details”. Our website also includes a PDF download named “Data Field Descriptions” that defines what each data field is capturing. Also be aware that the data files obtained and used by third parties (CoreLogic, MLS, Zillow, etc.) to populate their websites and software have the same detailed information. Unfortunately, we have no control over how they use it. And lastly, one of our biggest challenges and goals is to improve our data to accurately report the existence of ADU’s. That is a work in progress at the present time. Hopefully this is helpful. Take care!
Thank you as always Jim. It’s so helpful having you pitch in commentary from the Assessor’s office perspective. I sincerely appreciate it and you are welcome any time to share thoughts or correct anything I say that is off.