Below grade?

[Charles Knutson]

Like so many questions in the appraisal business, the answer is -- it depends.

How does the market respond to such properties? How do brokers list them? What is the local custom?

That last question is key -- in Colorado, finished walkout basements are treated as w-o basements, or as above grade living area, depending on local custom. In the mountains, this would be considered as lower level GLA (with a comment) -- in the Denver Metro Area, it would be w-o basement.

To further confuse the matter, in the Denver Metro Area this would be w-o basement in ranches and two stories. In bi levels, raised ranches, and split levels, it would be finished lower level GLA.

In the photos you provide -- are these the same house? The terrain looks different, so I will assume they are not.

In the second photo, that home would fall under the customary guidelines for mountain homes, with the lower level w-o basement added to the GLA. Why? In mountain areas, most homes are built on sloping sites, with the entry level determined more by the driveway access than anything else. I've done reports on homes where the entry is through the basement walk out, where all of the lower level rooms have windows above grade.

In the first photo, if that view is the front of the house, I would call it a raised ranch, with the w-o basement factored into the GLA. If that is the rear of the house, and the home is in an area with generally level terrain, I'd call it a ranch with a w-o basement, with the basement considered separately from the GLA.

Sample Comment:

"In mountain properties of this type, finished living area in walkout basements is often considered as part of the above grade GLA. For the purpose of this report, such living space in the subject property and comparable sales was considered as part of the GLA when appropriate."

When using this comment, I put "See GLA" in the basement line, and "N/A" in the finished line. When the basement is partly finished, I give the GLA credit for the finished portion, and put the unfinished lower level SF on the basement line, and unfinished underneath.

When doing reports on this type of property, where it is acceptable to include the w-o basement in the GLA, I look at the subject and comps both ways -- with all living area combined in the GLA, and the w-o basement considered separately. Then, I use whichever approach makes the most sense.

As far as I know, this explanation has always been accepted -- except for one occasion, with a review appraiser in Florida.

When I was a trainee, one of my supervisors taught this rule of thumb: if the lower level wall is 40% or less below grade, with 60% or more above grade, and normal height window sills at or above grade, that living space can be considered part of the GLA. This garden level rule is the standard in bi level and split level homes, in which the lower level is usually considered GLA, whether walkout or not.

The most conservative approach is to always treat w-o basements as basements, but this will sometimes short change the subject property, relative to the market's perception of it's value and functional utility.

The most important part -- explain what you did and why you did it, and be consistent throughout the report.

 

[CANative]

The photos and sketches are the same house.

 

[Charles Knutson]

The photos in #2 and #9 are the same house? Geez, I can see the problem.

I would probably write something like this as a comment on the improvements and the approach:

"The subject property is a multi level ranch home, with a finished walkout basement on a terraced site. The quality of finish and functional utility of the walkout lower level is the same as the upper level, and both levels are part of a fully integrated living space.

For multi level homes on terraced sites in this (the subject property's) sub area, finished living area in walkout basement lower levels may be considered as part of the above grade GLA. For the purpose of this report, such living space in the subject property and comparable sales was considered as part of the GLA."

In the grid, I would call the subject and all comps multi level homes. Whether 2 or 3 or 4 levels -- in this sub area, homes built on terraced sites are often multi level, with similar market appeal.

Emphasize multi level in the grid; explain the ranch with walkout and 2 story and other multi levels (whether they have walkout basements, below grade, or no basement) in the comment addendum.

 

[James Micozzi]

XI, 405.05: Gross Living Area (11/01/05)

The most common comparison for one-family properties (including units in PUD, condominium, or cooperative projects) is above-grade gross living area. The appraiser must be consistent when he or she calculates and reports the finished above-grade room count and the square feet of gross living area that is above-grade. For units in condominium or cooperative projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area. In all other instances, the appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. Only finished above-grade areas should be used—garages and basements (including those that are partially above-grade) should not be included. We consider 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. My bold

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 and finished areas below-grade” line in the “sales comparison analysis” grid. To ensure consistency in the sales comparison analysis, the appraiser generally should compare above-grade areas to above-grade areas and below-grade areas to below-grade areas. The appraiser may deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. However, in such instances, he or she must explain the reason for the deviation and clearly describe the comparisons that were made.

So, looking at this section from Fannie's guidelines, the answer is, IMHO, it depends :Eyecrazy:

 

[CURT VAN HOOSER]

Greg,

In your original post, the sketch looks as though the hillside does not actually come up next to the lower level. Can you walk through this space or rather, is there an opening here? I'm not sure I would call this a basement, but then again, as has been suggested, it really depends on what the market reaction is.

 

[ockyappraiser]

Our state has adopted the ANSI standard along with the appraisal regs as state law for both appraisers and realtors. . .ANSI says any part below grade. . .basement. I don't read in ANSI that you are allowed to deviate for market reasons. If you're state regulates that you must measure by ANSI. . .would you risk going with a "market" scenario. . .I don't.

 

[Michigan CG]

i had one recently that was quite the problem. raised ranch (split foyer) where the kitchen and living room were the lower, patially below grade level while the bedrooms were in the 2nd level (all above grade). it also had an inlaw accessory unit with its own entry etc above grade. oh, and it was an FHA loan.

first call was to the FHA help line where i explained the house, noting that there was more than adequate ingress and egress from each of the lower level rooms. i explained the room count/locaion and expressed that there would be an adjustment for unusual floor plan. and that the accessory unit was desirable in the market.

i was told by FHA (and indicated that in the report) that due to the adequate ingress and egress that it was allowable to use both levels as square footage as long as i supe explained everything in the report, which i did. as far as i know, and it was a few weeks ago, the loan went thru with no problems.

generally i never use below grade area for square footage but this was an unusual property. FHA agreed and as long as it was well explained.

This is a great example...TALK TO THE PEOPLE. Research, asking questions and being credible. And when I talk to the people I include their name and phone number in the report.

 

[CANative]

The three sides away from the hill are above grade, built on a concrete perimeter wall with stud frames to a mudsill... then there is the floor. The area behind the back wall is accessible through a "half-size" door. If you step through the door the area behind is like a 45 degree crawl space. There is about a 6" drop below the floor level before it starts rising.

 

[Doug Wegener]

Ive been saying for years here (with many disagreeing) that daylight basement can sometimes be included in GLA. If you want to call that basement include it in GLA with explanation. In the basement section I just put "included in GLA" with extensive commentary that the market does not recognize a difference between conforming quality daylight basement and above ground GLA.

However, in this case I think you could get away with calling it a 2 story on its own terrace. You will have less problems with underwriting that way. They wont come back asking for those daylight basement comps. Just my opinion.

 

[Charlotte Dixon]

I don't know if my answer will be perceived as "crooked" "stupid" "ridiculous" "misleading" or all of those. But.....

With that type of dwelling, it depends on the comps available that I use. That's not to say I don't elaborate on the subject dwelling's style, i.e. walk out on one side of the house, and below grade on the other side. As we know, it takes longer to analyze the comps, in regard to the subject's "different" elevations. I just try not to muddy the report with adjustments that will drive me and the reader crazy. ...........they do read these, don't they????