Fannie Guidelines-not Etched In Stone

[Don Clark]

In the process of assisting an appraiser who is facing sanctions. The complaint, among other things states that Fannie Mae , along with the ANSI Standard does not allow the basement square footage to be used in an appraisal.......wrong. Fannoe Mae's sellers Guide(pages 581-582) spells out a very clear exception to this. To wit: "The appraiser may need to deviate from this approach if the style of the subject property r 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."

This is also referenced in a course I just took from McKissock called "How to avoid a visit with the licensing board".

And, in Virginia the ANSI Standard is not a mandatory standard.

Fannie Mae "Guidelines" are just that......guidelines.

 

[Terrel L. Shields]

Exactly. But boards are often run by folks of firm convictions and investigators may like the power trip. Only one investigator has ever impressed me with her command of USPAP. Others not so much.

 

[timd354]

In the process of assisting an appraiser who is facing sanctions. The complaint, among other things states that Fannie Mae , along with the ANSI Standard does not allow the basement square footage to be used in an appraisal.......wrong. Fannoe Mae's sellers Guide(pages 581-582) spells out a very clear exception to this. To wit: "The appraiser may need to deviate from this approach if the style of the subject property r 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."

This is also referenced in a course I just took from McKissock called "How to avoid a visit with the licensing board".

And, in Virginia the ANSI Standard is not a mandatory standard.

Fannie Mae "Guidelines" are just that......guidelines.

You are correct, but the Fannie guide also states that the appraiser must explain the reason for the deviation from the typical practice and must also be consistent in how he treats the subject and the comparables in the sales comparison approach. Hopefully, the appraiser in this case did that.

Here is the entire portion of the applicable Fannie guidelines regarding this issue:

Gross Living Area

The most common comparison for one-unit properties, including units in PUD, condo, or co-op 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. The need for consistency also applies from report to report. For example, when using the same transaction as a comparable sale in multiple reports, the room count and gross living area should not change.

When calculating gross living area

• The appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property.
• For units in condo or co-op projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area.
• Garages and basements, including those that are partially above-grade, must not be included in the above-grade room count.

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.

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.

 

[timd354]

Exactly. But boards are often run by folks of firm convictions and investigators may like the power trip. Only one investigator has ever impressed me with her command of USPAP. Others not so much.

That is exactly the problem with some state boards - some people on some state boards seem determined to hit an appraiser with some sort of violation/sanction if the appraiser did something differently from how they would have done it, even if there is no objectively arguable USPAP violation. For a state board in this case to issue a complaint based upon an ANSI standard in a state where ANSI is not required and to also cite a non-binding Fannie guideline, is problematic. If this is the sole basis of the complaint, it should go nowhere, but it would not shock anyone to see a state board sanction someone over this, even though it is clearly not a USPAP violation if the appraiser adequately explained what he did, why he did it, and was consistent in his treatment of the subject property and the comparable sales.

 

[Deleted member 130081]

FNMA Guidelines and the Selling Guide are guiding who, legally speaking? A clever lawyer would go down that road first. Ask yourself what the appraiser has agreed to and what they have signed their name to. Keep it in that context and you may see things different. Will the sanctioning board see it that way? Maybe, maybe not. Terrel makes an ugly but very real point.

 

[Elliott]

If my subject is a side-slope with a lower level of bedrooms, I'm surely going to compare it with other finished lower level style homes. What sense does it make to compare a 6-3-2 with 1800 sf with a 3-0-0.1 with 900 sf and a finished "basement?" Apples with apples. I've always get the big stip, even after explaining, and then re-explain the reason for the comparison, but then its always become a non-issue. And its the way the market "sees" it.

 

[Tim Hicks (Texas)]

The $64,000 question is "are there other like/kind sales out there that were not used in the appraisal?" You can deviate, but you better be sure there are no like/kind sales and how do you know if it does not effect the value unless you have a similar sale that supports that assumption? If you look hard enough, you can sometimes find a like/kind sale when it comes to homes with below grade area. Here in Texas, they are not typical, but they can be found.

My point is "You need to recognize the appraisal problem and do your best to solve it. Whatever you do, don't ignore it."

 

[JasonHaskell]

How can we still be having this conversation about walk-out basements? This comes up weekly on this forum, I don't understand why it's so hard for appraisers to understand/explain this issue.

 

[djd09]

Sure lets start including basements as GLA. I love it.

And at the same time lets include the Above Grade as basement.

2+2=5

 

[Tim The Enchanter]

Not etched in stone.
Written in the sand on the beach.
Oh look, here comes the tide.