1st Floor Partial Basement?

[Bob52]

Hello All, hope everyone is staying safe and doing well. I am a retired Electrical Contractor and my knowledge of the appraisal trade is extremely limited so here I am!! We were thinking about buying this house but had an interesting conversation with a good friend who ran into a big problem with a home similar to this one. They are close in description only to the 1st floor being embedded into the hill side as you can see, and the one wall that the garage is on is the side that is up against the hill. Well, he ended up not being able to buy because the appraisal came in 47k lower than the asking price and seller would not agree. It turns out that it was considered to be a "partial basement" because the one wall was considered to be below grade. I thought grade would be the front door on the garage level. I don't see how they can call it "below grade" just because of one garage wall was into the hill. Now this homes 1st floor has the same issue we believe as the one side is into the hillside. This floor is fully heated with one small bedroom or office. The hallway from the garage door has a laundry closet, a closet for the forced air unit and of course the staircase leading up to the 2nd floor. The whole house has been taken care of. Pride of ownership was apparent. My wife loves it, but not sure how a VA appraiser may look at this. The house is only about 1600 sq ft total if you count the 1st floor area and excluding the garage. I think about 425 sq ft. ft. We hate to even spend the money on an appraisal if this is what might happen to us. Just curious what you guys think about this. Appreciate your time and thoughts. Thanks a bunch.

 

[Joe Flacco]

If the kitchen / living / dining rooms are on the upper level then I would report the entry level as basement. It probably has more value than a basement that is fully below grade. It could have the same value as the upper levels. The data I find would decide that. But I would still report it as basement because it is below the main living level.

 

[alebrewer]

So if the appraisal is prepared for agency use (Fannie/Freddie) or HUD, their guidelines generally follow ANSI. The 'grade' used is street grade, so that, if any part of a floor is below street grade, it is considered basement. They do, however, allow exception from this guideline so long as (a) the particular market the home is in recognizes finished basements as above grade living area (Colorado for example), (b) it is challenging to impossible to extract above grade from below grade - either public records or MLS reporting), and (c) the appraiser is comparing apples to apples - e.g. using sales with finished basements as comparables. If finished basements are 'rare' in your particular market, that means that your market doesn't put a lot of value on them, and they will command a contributory value less than the above grade area, hence appraisals coming in short. Realtors have no guidelines they have to follow, so they can report the below grade area however they want.

 

[Joe Flacco]

Please stop talking about ANSI. There are no appraisal guidelines that says to use ANSI. You can only use ANSI if the structure size of the comps you are using are based on ANSI.

 

[alebrewer]

Please stop talking about ANSI. There are no appraisal guidelines that says to use ANSI. You can only use ANSI if the structure size of the comps you are using are based on ANSI.

This is why I elected to not engage folks on AF. Too many a-holes. If you'll read the post, it said the agency guidelines generally follow ANSI, not that they were explicitly incorporated into any guideline. But since you are having trouble with that concept, here is the SPECIFIC guideline from the Fannie Selling Guide:
" 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." (Secction B4-1.3-05). Anyone with even a rudimentary understanding of the English language would understand that this guideline generally follows ANSI's guidance.

To the OP, here is the section where deviation is allowed:
" 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."

 

[Joe Flacco]

This is why I elected to not engage folks on AF. Too many a-holes. If you'll read the post, it said the agency guidelines generally follow ANSI, not that they were explicitly incorporated into any guideline. But since you are having trouble with that concept, here is the SPECIFIC guideline from the Fannie Selling Guide:
" 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." (Secction B4-1.3-05). Anyone with even a rudimentary understanding of the English language would understand that this guideline generally follows ANSI's guidance.

To the OP, here is the section where deviation is allowed:
" 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."

It does not "generally follow ANSI" ANSI has all kinds of stuff like subtract open areas. The selling guide basically just says calculate living area based on exterior wall measurements on each floor and what is considered basement or not is up to the appraiser based on the allowed deviation. What the selling guide says is not like ANSI at all.

I don't even know why you are so offended to the point that I am an a-hole. lol

 

[alebrewer]

It does not "generally follow ANSI" ANSI has all kinds of stuff like subtract open areas. The selling guide basically just says calculate living area based on exterior wall measurements on each floor and what is considered basement or not is up to the appraiser based on the allowed deviation. What the selling guide says is not like ANSI at all.

I don't even know why you are so offended to the point that I am an a-hole. lol

Offended is a strong word. I'd say more like... you know when you're relaxing on a cool spring evening and everything is perfect, then a mosquito bites you? That's close to the feeling.

 

[Bob52]

Hi all, thanks for the input. It seems to me that the comment "apples to apples" would be logical and appropriate. I have always tried to be a global learner and evaluate having all the input. The word "Partial" logically is not "whole" so maybe even the sq ft price could be adjusted for the 1st floor based on this logic. I cannot go into a home and give an estimate on providing an electrical circuit have the same price if the construction is different. In other words, with one house I may have to run pipe, in another situation I may run romex and the length of the runs may be different. I just cannot push something through based on ONE variable, that will never work. Thanks Guys

 

[CJ1234]

Here in MN that is a basement, period. As long as the appraiser is consistent in how they report it and the comparable properties, and as long as they are are clear in how it is reported, the report value should be supported. Does the market pay equally for that lower level as the upper levels? There is a reason basements and above grade square footage are separated on the grid--because they don't always have the same appeal/demand/value; due to differences in utility.

I would guess, the lowest level, with garage has a family room and utility. Up a level would be living/dining/kitchen, and top level would be bedroom(s). In MN the garage level room would be considered a partial basement (the other area being a built in garage); the top two levels would be Gross Living Area. The basement would be valued based on what the market attributes for finished area in the basement and what the market values partial vs full basements. I personally would try to compare it to other properties with partial basements. I would also try to compare it to other properties with primary access/entry on basement level &/or stairs leading up to the main living area.

Here in land of 10,000 lands and nearly every home with a basement, this would be a non-issue. What do other properties in the market look like?

 

[CANative]

Residential properties in hilly, mountainous and/or recreational areas are often built on slopes with the lower area partially below or against the grade. If the market accepts them as they are (all areas consider gross living area) then it is appropriate for the appraiser to deviate from the Fannie/Freddie/FHA protocols. I've done dozens and dozens like yours (including that chalet-style.)

Some appraisers just can't wrap their heads around the logic and forge ahead and exclude that area. The problem with that is that it puts the subject property into a different class of property (small houses vs. medium houses vs. large houses) which can make them select inappropriate sales.

There's not really much that can be done because you never know which appraiser your lender is going to hire.