appraisal came in with less square footage than expected

[gabookworm]

We are trying to refinance our home, purchased in 2005 based on an appraisal that calculated the home at roughly 1950 SF of GLA. This is a quad-level home, with the levels from the bottom up being 1) basement, which is completely below grade, 2) garage + family room & 1/2 bath, 3) kitchen/dining/living rooms, and 4) 3 bedrooms + 2 full baths.

We have now had two separate appraisals (with a company assigned by our mortgage broker) that have called the family room/garage level below grade and have, therefore, shorted us the 330+ SF of the family room and 1/2 bath as part of the GLA (bringing our total GLA down to just over 1600 SF and our expected value down by about $35-$40K, as far as we can tell). Given the effect this has on the value of our home now vs. when we purchased it (and our ability to refi without a hitch), we have appealed both appraisals, with the second appraiser paid for by the appraisal company b/c even their appeals guy thought there was an obvious mistake. We got word today that they aren't going to change anything because of a retaining wall by the garage... more on that in a moment.

Upon reading the ANSI standards, my confusion is this: while I understand the garage should not be counted as part of the SF, I am unclear on whether it still counts as part of the level when determining above- or below-grade. There is a very short (maybe 5-6 feet) portion of one wall of the garage that is below grade (there is a retaining wall along the side of the garage shared with the kitchen/dining/living room level of the house). However, if one measures the family room and 1/2 bath using the wall it shares with the garage as the exterior wall of the space--which is how I read the ANSI guidelines--then NO EXTERIOR WALL of the family room or 1/2 bath is below grade at all, not even by a few inches. Note: the family room and bath are behind the garage, connected to the kitchen level by a stairway without a door, and have walk-out access via sliding doors to the ground-level patio. The back exterior wall of both rooms are also entirely above grade.

IF the garage's one section of below-grade wall does, indeed, disallow the entire level as GLA (even though my reading says the shared wall with the garage should be measured as the exterior wall of that level??), then do we have any recourse at all for the fact that we apparently bought the house based on a bad original appraisal and thus, a bad loan? Our city/county tax assessments are based on the higher square footage as well, and of course, we have to consider what this will do to our resale value. Is the entire level considered below grade, even though the garage doesn't count toward the SF of the house, or should the family room and bathroom be considered a level in and of themselves that is entirely above-grade (since ANSI seems to clearly state that garages don't count in calculations of SF)?

Thanks in advance for your help, and please feel free to ask questions for clarification. I realize my description might be a bit confusing, so here's my attempt at linking to a photo of at least the front of the house so you can see the garage/retaining wall:

 

[residentialguy]

Hello,

Thank you for your question. I hope I can help clear it up. Keep in mind that I am from MN and this may not apply to your neck of the woods.

It is a common concern with 4 levels. ANSI is a good basis, but sometimes has limitations, and some practical application must be applied. It is a bit hard to understand, but you seem to be saying that the 2nd level is completely above grade on all sides. If that's the case, then here's were it gets a bit gray.

From what you explained, the 2nd level from the bottom has a family and 1/2 bath. Ask yourself this. How does this act? Does that sound like something a basement would have? It does to me. A main level typically has the kitchen, dining, (always with exceptions though) Below that is considered the lower level.
I would bet that 4 level splits in your area are treated like that. Kind of like a 1 story home (rambler) with a full basement that has been cut in half and one half is raised up a 1/2 flight. It still functions the same.

Now, something you need to keep in mind. Right now you have a full walkout basement, which has good value. If you count the 2nd level as GLA, then guess what your basement becomes. You would then have a partial (1/2) unfinished basement with no walkout. You can't count it as GLA and count it as basement. So while you may have added value to the top, you have decrease the best part of your basement value.

In other words, there may not be any value difference between how the listing agent listed it as GLA and how the appraiser stated it at below grade. That would be something that you would hire an appraiser in your area to find out.

I'm not a lawyer, so I can't give you any legal advice. Just make sure on your taxes that if they are treating the top 3 levels as GLA, then they have to treat the lower level as a no walkout, unfinished 1/2 basement.

Good luck. I hope this was a bit clearer then mud.

 

[Green Hornet]

gabookworm,

Without physically being at your home, it is difficult to provide guidance on the GLA issue.

Regarding the 330SF...it is unlikely that the exclusion of it from the GLA would account for $35 - $40,000 difference, that would be $106/sf. Keep in mind that the sales comparison grid typically measures the market reaction to differences between the subject and the comparables.

I don't know about your market, in my area it is seldom that the market reaction is above $50/sf. It is typically around $30 - $40/sf.

Even without the 330SF included in the GLA, the appraisers would have given the space some value, reducing the value impact due to its exclusion from the GLA.

My guess would be that your market, if similar to most of the USA, was increasing significantly in 2005. It is also certain that your market has seen a decline in values in the last year or two.

In my area, a 7 - 20% annual decrease is not unusual. Unless your home is in one of the few areas in the USA that have not experienced a decline, I would say that the issue is not if the 330Sf should be in the GLA or not.

A few questions...when was the refinace? Was it an interior appraisal, did the appraiser measure your home? Regarding the last two appraisals... how close were the opinions of market value?

Given that two appraisers, independently, identified the space as not GLA, I would tend to lean in that direction.

 

[Mike Kennedy]

Do you have photos of the right side and full view of the rear (at least behind the garage)????

Also please identify which type of Loan applied for, Conventional, FHA, VA?

 

[Paul Isolda]

The area you describe is probably below grade. Grade is the highest point dirt hits the foundation. Either way, the space has value and if compared to similar design homes, is appropriately accounted for. Your issue is really with the market and the comparables. We don't know what the appraiser compared your house to, that is the real issue.

 

[Lee Lansford]

The market value of your property is the same whether one appraiser considers a certain area to be GLA and another one not (as long as both are consistent in their consideration and analysis of market data).

I'd add more...but I have to be on a train one hour from now!

 

[Restrain]

Short answer: If any of the living area is below grade, it is "basement", and shown accordingly. This should all equal out if similar sales are used in the valuation process. As an example, a "raised ranch" is often a two-story home, where the front and sides of the yard were elevated to the second floor, with a second floor main area entrance, and a walk-out rear on the lower level, creating a walk-out basement for the lower level. At the same time, if this home was built on a level site, and the entrance at the lower level, it would be a two story home, with all living areas above grade.

Confusing, isn't it.

 

[Scott R Marshall]

Your description is somewhat confusing however if I understand correctly 1 level of your home includes the garage and some living areas, with the garage being the only section of the home below grade. If going strictly by ANSI standards, that level must be considered below grade as any portion of that level being considered below grade classifies the entire level as such. Having said that, the appraiser is not bound by ANSI standards. What the appraiser is required to do is to determine what reaction, if any, your market has to this type of feature. Some markets may not react at all, some positively, some negatively. There are procedures which an appraiser can follow when attempting to reflect the market reaction. If there is no reaction, one practice I have seen (and performed myself) goes as follows:

Homes has 2000 square feet of heated gross living area, 400 of which is technically below grade.

On the appraisal and sales comparison grid, property is represented as 1600 square feet of heated above grade gross living area, 400 below grade gross living area (basement section), above grade room count reflected only, comment provided on room count of below grade areas.

For purposes of comparison, the subject is compared to either properties with the same/similar above/below grade floor plan or properties considered comparable to a 2000 square foot home.

On the adjustments for gross living area (square footage) the appraiser determines an adequate market adjustment, usually reflected on a price per square foot basis. For purposes of this illustraction, lets say $25.

Comparables 1 is 2200 square feet, all above grade. Above grade gross living area adjustments are calculated as a -$15000 made to the comparable. The 400 square feet for the subjects below grade area is then adjusted as +$10000 to the comparable. This should reflect the appraisers determination that the actual gross living area adjustment is made based only on the difference in overall gross living area of 200 square feet based on market observations that the market treats above and below grade sections similar to you scenario the same.

This scenario is only if the market treats these areas the same. Based on your description, market reaction in my area typically shows that as long as condition and quality of construction are the same and accessibilty is considered typical for a single family residence, the market does not differentiate however I do not appraise in your market therefore cannot tell you how your market reacts.

 

[Lobo Fan]

It looks like we are dealing with two different issues here. The GLA and the value. It looks like the second appraiser is technically correct. Anything even partially below grade is considered to be basement. How your market reacts to these type of spaces is another issue.

In my market, split levels with areas partially below grade are treated as if it were full GLA. In my sketch, I will break out the below grade area. When I value this space, I give it the same value as the fully above grade areas. How these issues are addressed vary widely from market to market.

I think you need to look at more than just the differences in GLA. It is very possible that your decline in value is more the result of market conditions than the GLA discrepancy. What kind of value did the second appraiser assign to the below grade areas? The space and the bath should be accounted for somewhere in the report. It will not show up on the room count line since that is reserved for strictly above grade areas.

Good luck.

 

[Webbed Feet]

Grey areas and a blame game

Welcome to the forum.

Also, thank you for a well thought out post. Your description is quite good. Your information however brings up a series of issues, not just one issue.

First, ANSI is not some universal requirement that all real estate appraisers must follow. Only an appraiser stating in a report that they are measuring to ANSI standards would therefore be held to doing what they said they did. Then, regardless of that, your style of home is open to interpretation of different appraisers regarding how such a garage / family room level should be handled.

You seek a rule set in stone in order to try and win your view of what should have been done. We cannot point you to such a rule because there isn't one. Houses are built to too many styles on too many differing situations regarding the building sites. What one market in the U.S. does in market reaction to such a level may not be what some other market in the U.S. responds to the same situation. On top of that, there may be a call, due to the available at the time comparable styles of construction, to treat the level one way one time, and then differently the next at some different point in time because of comparison issues with what there is to use for comps. The goal is not blind adherence to some ridged set of rules, rules impossible to create for application to all real estate in all locations. Instead the goal is to credibly express market value at any given point in time.

Now that we are past all of that. I see a giant flaw in your logic right off the bat. You are attempting to 100% blame differing value outcomes between 2005 and 2009/2010 on nothing other than how your house was measured and what was determined to be GLA versus what was not. Even going so far as to ask if the appraiser in 2005 could be made responsible for your situation today as "Bad" because he/she made a different interpretation of that level? You do realize that you posted that you wanted, believed, and want to fight for that level being GLA, then you asked us if failing that if you can successfully blame the appraiser that considered it the way you now want it to be? You do appreciate and comprehend you just told us you most agree with the 2005 appraiser, but lacking getting your way you are asking us if you can successfully sue the person you most agree with? Wow... I think you just made a very strong case for my view that all appraisers should demand hold harmless agreements out of all borrowers.

You need to understand that it is completely disingenuous of you to purchase residential real estate in 2005, at the height of a burning hot booming real estate market hitting 20% to 30% appreciation rates in most areas of the country that year, and then four to five years later, after a following real estate crash with resulting in declines of 25% to 60% since then, proceed to completely blame all your "value" woes on how one level of your house was considered for GLA or not. You purchase at the peak, want to refinance at what may be near the bottom, and all of your issues are only how your house is being measured, or was measured?

Your garage level was considered for value on the basement row of the grid. IF comps had similar levels and properly considered, realigning your garage level to GLA would mean any of their similar lower levels would also have to be realigned as GLA. The end result very well may not alter your refinancing issue at all. You would need a very good LOCAL appraiser to take a look at the situation versus the comparable used to answer that question.

Good Luck to You