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gross living area

Tax Records is not the definitive source for square footage

January 22, 2020 By Ryan Lundquist 49 Comments

Why is the appraiser saying it’s only 1,400 sq ft? Tax Records shows the home is 600 sq ft larger. This issue comes up ALL the time, so let’s talk about it.

MY BIG POINT: I can’t speak for every market across the country, but I’ll say there can be a difference between what the building department has on file for a house and what is listed in the Assessor’s Records. In my market Realist is what we call Tax Records and that data comes from the Assessor. In my experience it is usually pretty good, but sometimes it’s completely off because it doesn’t actually reflect what is permitted. This means we need to look to a source that does (or should) keep reliable records on building permits. And that source would be the building department instead of the Assessor. 

The truth: The Assessor’s records are generally reliable, but I’m just saying sometimes they’re not. Why is this? At times it’s as simple as the original builder not turning in accurate information when a house was built. Or maybe an owner took out permits but official records were never updated. Of course we’ve all seen instances where the tax roll shows two units on one lot, but there’s really just one house nowadays. Let’s not forget sometimes owners do an addition without permits, so the Assessor might actually be correct even though the house is technically larger or has even sold on MLS as a larger home. For reference, here are ten reasons why an appraiser’s sketch might be different.

TWO SITUATIONS ON MY DESK:

1) Garage included in the square footage: I recently measured a house for a Realtor that was about 1,100 sq ft despite Tax Records stating it was nearly 1,600 sq ft. Based on my sketch it looks like the Assessor had the garage included in the square footage for whatever reason. I’ve definitely seen basements included in the square footage too.

2) Non-permitted area included: I’m also working on something where the tax roll shows an area at nearly 2,500 sq ft but about half this space isn’t actually permitted. Look, most of the time Tax Records is pretty much right (especially in tract areas), but in this case it’s scarily inaccurate. One of the problems is in Sacramento County home owners can “correct” property characteristics in Tax Records by submitting a sketch from an appraiser. I get the idea here, but what if the area in the sketch was not actually permitted (and the appraiser hopefully disclosed that in the report)? It would seem like verifying square footage as permitted would be a nice touch when adding square footage into the tax roll, but I’m afraid that doesn’t always happen. It certainly didn’t happen in the case on my desk and I’ve seen many other instances where an area that was not permitted ended up being reflected as square footage in the Assessor’s information (and then Realist).

UPDATE: The chief appraiser at the Sacramento County Assessor’s office commented on my post and I wanted to link to it here. I think he provides some helpful context (and he’s a really nice guy).

Closing advice: If something doesn’t seem right about the square footage, start digging further. Most of the time you’re likely going to be able to trust records, but sometimes they’re going to be off. So when something doesn’t smell right about the size, quality of work, setbacks, etc… it’s time to call the building department to see what permits are on file. I never rat out an owner either, so I don’t call and say, “Hey, this house measured 2,300 sq ft, but what do your records say?” Nope. I would call and ask, “Can you help a brother out? What do your records show for square footage and anything else that has been permitted?” Also, if you’re in Sacramento, here is a link that shows building permits online (you’re welcome). Lastly, remember that it’s not enough that permits were pulled. Were permits finaled? That’s the real question.

I hope this was helpful. This could honestly be a dissertation and what I’ve written only scrapes the surface. Please add your comments below.

Questions: Any stories to share or advice about relying on Tax Records (or not)? How is your market different than mine? Anything to add?

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Filed Under: Appraisal Stuff Tagged With: blog in sacramento, building departent, change square footage in public records, garage included in square footage, gross living area, non-permitted area, Realist, Sacramento, Sacramento Assessor, Sacramento Home Appraiser, Tax Records

Why did the appraiser say it was only two bedrooms? It should be three.

March 7, 2016 By Ryan Lundquist 36 Comments

The real estate agent marketed the property as three bedrooms, Tax Records said it was three, but then the appraiser said it was only two. What the heck? Let me share with you a situation I encountered recently where an appraiser (me) ended up removing one of the “bedrooms” from the room count because of a functional issue. Let’s look more closely below. I’d love to hear your take in the comments.

The layout of the house according to the agent:

2-or-3-bedroom-sacramento-appraisal-blog-part-1

It’s not normal to have a layout like this, right? Imagine getting up to go to the bathroom at night and walking through someone’s room to get there. The middle room really wouldn’t have much privacy either, right? I can also picture a kid in the middle bedroom setting up a taxation system and charging his brother for passage from the rear room.

bedroom access issue - sacramento appraisal blog

The layout of the house according to the appraiser (me):

2 or 3 bedroom - sacramento appraisal blog - part 2

I pulled three-bedroom comps before seeing the property, but I was surprised to discover it wasn’t really a 3-bedroom home because of a functional issue. I know this seems like a subjective call to axe a bedroom, but the functional issue definitely limits the use of the middle room, so it was not considered a bedroom. It’s too bad there was not more foresight when the addition on the rear of the house was done so the floor plan would be more functional. As a side note, I could have labeled the rear room as a den instead of the middle room, but since the rear room was larger in size, I thought it would more likely be used as a bedroom by the market.

Key Takeaways:

  1. Describe correctly: It’s important to describe properties correctly for the sake of clarity and even potential liability. This is true for both agents and appraisers.
  2. A Bedroom with functional obsolescence: I imagine some real estate professionals would call this a 3-bedroom home with functional obsolescence because one has to travel through a “bedroom” to get to a different bedroom. In my mind this was not a functional three-bedroom home, so I chose to describe it as a 2-bedroom home, but I would understand if someone wanted to describe it differently.
  3. The market’s response: The question becomes how to value something like this. Should we compare it to 2-bedroom or 3-bedroom homes? Well, it’s not really a regular 3-bedroom home, but it’s not really a traditional 2-bedroom home either because it has the extra space (den). Ideally, we should find a 2-bedroom property with a separate area like a den, office, or something else that is similar. If we’re lucky we might find a few sales with functional obsolescence (fat chance). Lastly, if the subject property has sold a few times in recent years, we might go back in time and see how the market valued the home. What did it compare to at the time of its previous sales?
  4. Tax Records isn’t the definitive authority: Just because Tax Records says it does not mean it’s accurate. In this case the home was functionally two bedrooms despite Tax Records saying it was three. As much as we want to trust Tax Records, sometimes we have to look at what is actually there and then try to understand why there is a difference between public records and reality. For reference, here are 10 reasons why public records and the appraiser’s square footage are often not the same.

I hope this was helpful. I’d love to hear your take in the comments.

Radio Interview: By the way, I did a radio interview last week on 105.5FM in Sacramento. Realtor Jay Stoops had me on his show. You can listen to our 20-minute conversation below (or here).

Questions: Is this a 2-bedroom home or a 3-bedroom home in your mind? Any other insight or stories to share? Did I miss anything?

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal blog sacramento, appraisal group, appraisal problems, appraisers, appraisers in Sacramento, bedroom count, discrepency, gross living area, is it a bedroom, Square footage, Tax Records, walking through a bedroom

What do appraisers do when there are no permits on an addition?

November 4, 2014 By Ryan Lundquist 69 Comments

Real estate isn’t always black and white. What I mean is it’s rare to have one short standard answer to fully satisfy a question. The truth is an answer can vary depending on the property, location, or who you ask. Enter a lack of permits. How do appraisers handle it when there are no permits for an addition? Is it possible for a non-permitted area to be included as living space in the appraisal?

no permits on addition - by sacramento appraisal blog - image purchased and used with permission

I get asked this question almost every single week, and I’ve broken down my answer into four major parts. I hope this helps.

  1. Difference among Appraisers: First off, there is a spectrum for how appraisers respond to a lack of permits. Some appraisers take a hard-lined stance to say, “If there is no permit, there will be no value given to the area because it is illegal.” But other appraisers might take a different approach to discover how the market responds to the lack of permits. In the latter scenario, the appraiser is asking: Are buyers willing to pay more or less for the home because of the addition? In this case the best way to support an adjustment for the addition would be to find comps with a lack of permits. Of course there is a fat chance of actually finding comps, so an appraiser has to really exercise caution about counting the area as square footage. Ultimately a lack of permits does tend to carry a stigma for buyers, which causes many buyers to avoid the property. However, at the same time buyers are often still realistically willing to pay something extra for the addition. This is one reason why some appraisers might give a non-permitted area some value in the report (but the area may be considered as storage instead of living space).
  2. no permits on addition 2 - by sacramento appraisal blog - image purchased and used with permissionQuality: The quality of the addition is going to be a huge factor in whether buyers pay more or less for an addition without permits. Does it feel like the rest of the house? Does it have a real use? Does it have a permanent heat source? Is it something buyers actually want in the neighborhood market? Is the workmanship decent or shoddy? Buyers may also consider how much it would cost to get the area permitted.
  3. Depends on the Issue: If there is something minor that was added without permits (like a covered patio), it’s probably not cause for appraisers to start waving the red warning flag. But if there is something very significant that was done without permits, that’s a different story because it can deter buyers from wanting the house. For instance, I recently did some consulting for an agent for a property that had a non-permitted addition that increased the size of the house by 60%. After research it was my sense that the market would pay something more for the addition, but I still was not willing to say the area should be counted as square footage. In this case the addition was simply too much of a change, and it was bound to be a major marketability issue for a buyer obtaining a loan (see point #4).
  4. Loan Problems: Some lenders will not loan on non-permitted areas, and they ask appraisers to not include any non-permitted area as square footage. Other lenders will loan when there is a non-permitted addition, but they ask appraisers to consider how a lack of permits impacts value. Usually in the latter case the lender wants the appraiser to say something to the effect that the addition was done in a professional workmanlike manner – despite a lack of permits. An appraiser really isn’t licensed to say something like that, but lenders still try to get a definitive statement out of the appraiser nonetheless.
  5. Other: What else would you add? I’d love to hear any stories, points, and comments below.

Loan Officer James Clark with New Penn Financial says the following:

james clarkUnpermitted Additions are a big grey area when it comes to financing. There are so many different factors and people that come into play that make them difficult. Because of this many lenders will just say no. I have seen unpermitted additions obtain financing, but only if the appraiser is well qualified and writes a good report as to why. The appraiser will have to sell the reason to include it, and most of the time you will never get the full square footage value for the addition. Questions to ask when you have a property with an unpermitted addition: Does it make sense? Does it conform to the area? Does the addition actually add value to the property? Does it look like the rest of the house, or can you tell it was an addition? So be nice to the appraisers. I can say if you want the unpermitted addition to count for value or qualify for financing, it will come down to what they say in the report.

Five things to consider when there are no permits:

  1. Get the area permitted before listing it on the market. Then be sure the appraiser sees a copy of the permit (that has been signed off). A permit ensures the work was done to minimum building standards, and everything was done correctly.
  2. Just because there are permits doesn’t mean the market is going to pay big bucks for the area. For example, a garage conversion could technically add 400 extra square feet to the house, but taking away the garage is often a negative for value. A property with a conversion is not necessarily instantly more comparable to a house with 400 additional square feet. It’s probably better compared with other similar-sized homes that also have conversions.
  3. Just because an addition was added with permits does not make it living space. For example, an enclosed patio might be fully permitted, but it’s probably not going to be counted in the square footage if it doesn’t feel like the rest of the house, have the same quality as the rest of the house, and doesn’t have a permanent heat source.
  4. If you know an area is not permitted, try to provide the best possible information to the appraiser about when the area was added, who built the area, how potential buyers responded to the extra space when the property was listed, and even how much it would cost to permit the area (if you have that research).
  5. If you’re considering doing work without permits, realize you are signing up for some appraisal and loan headaches. A lack of permits is a good way to potentially kill a deal and/or harm your property’s marketability.

As you can see, there is much to consider when a property has a non-permitted addition. Not every appraiser will view the issue the same either.

Question: What else would you add? I’d love to hear your take and any stories.

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisals, Appraiser, appraiser's response to no square footage, GLA, gross living area, no permits on square footage, non-permitted living area, square footage no permits

Does an enclosed patio count in the square footage?

September 30, 2014 By Ryan Lundquist 23 Comments

Can you count an enclosed patio as square footage? I had a real estate agent ask me this question recently, and the answer was going to make a huge difference in the value and pricing strategy for an upcoming listing. The agent did not want to include the enclosed patio as square footage, but the seller did.

enclosed patio square footage - by sacramento appraisal blog

Question: Does a permitted “enclosed patio” built back in 1970 count as sq footage in a home? Tax records does not reflect any extra sq footage, but of course the owner wants to add 400 sq ft to the MLS listing.

Answer: An enclosed patio usually does not count in the square footage unless it is more like the home than not. The fact that it was built in 1970 is not the issue, but rather the quality of the enclosed patio is a big deal. Enclosed patios often have a lower quality compared to the rest of the house, and they don’t usually have the same feel as other parts of the home either. Moreover, they often don’t have a heat source, which is essential for any space to be considered square footage. In cases like this, a buyer would likely walk in to the enclosed patio, and think “This is a nice enclosed patio”, instead of “Wow, look at the 400 extra square feet of living space.” We have to keep in mind how buyers would view the property because if they don’t think of it as square footage, they won’t pay the same price per sq ft for the enclosed patio as they would for the rest of the house. On the other hand if the quality is very high, it feels like the rest of the home, and it has a heat source, it can sometimes be included in the total square footage (as was the case in the last photo below). Ultimately I would say the majority of enclosed patios are just that – enclosed patios. Not living space. This means in most scenarios enclosed patios are NOT included in the total square footage by appraisers. This does not mean they cannot contribute to the appraised value, but only that they are not considered as living space.

enclosed patio square footage 2 - by sacramento appraisal blog

enclosed patio square footage 3 - by sacramento appraisal blog

Keep in mind various portions of the country might have different rules for enclosed patios, so be sure to know your local code and how buyers perceive the market too.

NOTE: Photos in this post are not of the home in question, but rather of two different homes in the Sacramento area.

I hope this was helpful.

Question: Any further insight, questions, or stories to share?

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Filed Under: Resources Tagged With: addition, Appraised Value, appraiser measurement, counting as square footage, enclosed patio, GLA, gross living area, house appraisals, living area, question for appraiser, Sacramento home appraisers, Square footage

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