FHA-non-conforming basement bed approach

[prasercat]

So, I'm doing more urban appraising and FHA and so, it appears I'm having some different ideas about how to handle appraising my subject with a non-conforming basement bed due to inadequate egress window size and it being above 44" from the floor.

In every scenario, I'm not considering it a bedroom. Its a hobby room or an "other". However, the issue is, in appraising, the public do recognize value in basement beds (whether or not conforming). So the issue is with the comps, which in this case, seem to have the same problem. Actually, it is the norm for the competing area.

1) Do I ignore the non-conforming basement bedrooms in the comparables, since that would create some measure of consistency in an inconsistent way; such as, some have more than one non-conforming bed in the basement and less than two beds in GLA (the subject has 3 in GLA), so not too helpful from a valuation standpoint.

2) Only recognize the non-conforming basement bedrooms with the comparables (not subject), since that may lead to a more accurate market reaction; and three bedrooms in the entire home is consistent with market expectations for the neighborhood (so the subject has cleared that hurdle). Therefore, this approach, in this case, would likely lead to the most accurate valuation; however, it would be inconsistent with regard the relative treatment of the subject and comps. However, this is a bad general solution, since it depends on the configuration of the comparables relative to the subject.

3) Insist upon curing the non-conforming bedroom window in the basement - a seemingly ridiculous option.

The point is, from a valuation + FHA standpoint, I don't see any good options.

> I'm putting most weight on not recognizing any non-conforming beds with the comps (even though they are typical in the neighborhood) and even though it won't be best for an accurate valuation, since it's FHA/HUD.

Perhaps I can add a statement in my report : "The appraisal is conforming, the market is not"

Any suggestions as to how to handle this kind of analysis problem for "best practices and FHA" would be appreciated greatly, since I'm sure I'll be running into this more frequently now.

 

[sputnam]

This situation is a little more involved, but similar to the situation in some markets with split foyer style dwellings. As we all know, below grade areas are not supposed to be included in GLA. Problem is, the realtors in this market don't report GLA, they report 'livng area' and often include all finished, heated area...below grade or not. Public records is usually no help and sometimes it's impossible to break out what is below grade. So...I have frequently described the property in the appraiser standard way on the 1st page of the form, then included all the finished area in GLA on the grid. Of course, with all the necessary explanatory and clarifying comments...usually including something about I'm doing it this way in Sales Comparison, because that's the way these properties are marketed in this area. It's valid as long as you are apples to apples. So far, no one has had an issue with approaching it that way...but, I haven't done one like that under UAD....yet.

 

[Mr Rex]

What is accepted in the market? 3 BRs in the GLA, in my market the basement rooms use wouldn't matter, whether they met FHA "BR" requirements or not, even if there were 1 or more basement "non-conforming BRs".

 

[prasercat]

What is accepted in the market? 3 BRs in the GLA, in my market the basement rooms use wouldn't matter, whether they met FHA "BR" requirements or not, even if there were 1 or more basement "non-conforming BRs".

I understand that different markets behave differently; however, I guess I'm offering the question with the assumption that the market does consider these bedrooms as important and that it can be extracted from comp sales.

The problem is, in this case, FHA restricts me from valuing the basement bed if it is non-conforming with the subject, which can be at odds with the market valuation of the subject and comps for such beds.

I am vacillating as to how to reconcile this in the sales comparison approach, where all the comps have such non-conforming bedrooms and where I am not qualifying the basement bed of the subject as a bed, and indicating that the current use as a bed is non-conforming - this is a valuation inconsistency in the sales comparison approach.

 

[Mr Rex]

I understand that different markets behave differently; however, I guess I'm offering the question with the assumption that the market does consider these bedrooms as important and that it can be extracted from comp sales.

The problem is, in this case, FHA restricts me from valuing the basement bed if it is non-conforming with the subject, which can be at odds with the market valuation of the subject and comps for such beds.

I am vacillating as to how to reconcile this in the sales comparison approach, where all the comps have such non-conforming bedrooms and where I am not qualifying the basement bed of the subject as a bed, and indicating that the current use as a bed is non-conforming - this is a valuation inconsistency in the sales comparison approach.

I think you need to reconsider your understanding of FHA " Below grade BR reporting requirements" and FHA valuation protocol in relation to market values and marketability. In essence you are over-thinking the "problem". MHO

 

[mark hurlock]

So, I'm doing more urban appraising and FHA and so, it appears I'm having some different ideas about how to handle appraising my subject with a non-conforming basement bed due to inadequate egress window size and it being above 44" from the floor.

In every scenario, I'm not considering it a bedroom. Its a hobby room or an "other". However, the issue is, in appraising, the public do recognize value in basement beds (whether or not conforming). So the issue is with the comps, which in this case, seem to have the same problem. Actually, it is the norm for the competing area.

1) Do I ignore the non-conforming basement bedrooms in the comparables, since that would create some measure of consistency in an inconsistent way; such as, some have more than one non-conforming bed in the basement and less than two beds in GLA (the subject has 3 in GLA), so not too helpful from a valuation standpoint.

2) Only recognize the non-conforming basement bedrooms with the comparables (not subject), since that may lead to a more accurate market reaction; and three bedrooms in the entire home is consistent with market expectations for the neighborhood (so the subject has cleared that hurdle). Therefore, this approach, in this case, would likely lead to the most accurate valuation; however, it would be inconsistent with regard the relative treatment of the subject and comps. However, this is a bad general solution, since it depends on the configuration of the comparables relative to the subject.

3) Insist upon curing the non-conforming bedroom window in the basement - a seemingly ridiculous option.

The point is, from a valuation + FHA standpoint, I don't see any good options.

> I'm putting most weight on not recognizing any non-conforming beds with the comps (even though they are typical in the neighborhood) and even though it won't be best for an accurate valuation, since it's FHA/HUD.

Perhaps I can add a statement in my report : "The appraisal is conforming, the market is not"

Any suggestions as to how to handle this kind of analysis problem for "best practices and FHA" would be appreciated greatly, since I'm sure I'll be running into this more frequently now.

It is not just an FHA requirement that a bedroom have egress. It is also a building code requirement.

Therefore, I will not call any nonconforming room a bedroom whether FHA or not.

A three bedroom house with one bedroom window blocked by an addition on the back of the house, is now a two bedroom house in my report.

 

[prasercat]

I think you need to reconsider your understanding of FHA " Below grade BR reporting requirements" and FHA valuation protocol in relation to market values and marketability. In essence you are over-thinking the "problem". MHO

You mean like "As a rule, basement space does not count as habitable space......". Is about the most ridiculous statement I've seen written.

Then, it goes on to mention the window requirement - 2'x3' and 44 inches off the floor - for what? - for what is implicitly needed to consider the basement a habitable space when in fact they previously mentioned it was "as a rule" not considered a habitable space. Therefore, what they are saying is - it's a rule, but it isn't always a rule. They go on " In all cases, use reasonable care and judgement. If these standards are not substantially met, the basement area cannot be counted as habitable space.. Sounds like rules are rather porous and vague.

Oh, and then they made a slight oversight. They didn't define habitable space in relation to GLA specifically; however, they only implied it. So the implication is that habitable space is always GLA but that is just a rule perhaps. What we know in the real world is that markets value spaces that are not habitable according to FHA and it is our job to recognize that value - since we aren't the "rule" police, but rather valuation professionals.

The reason I'm over thinking the issue is that someone didn't think enough. You either make arbitrary decisions that have no bearing on the market or you seek to understand the market and make decisions based upon the market. Weed is illegal, but it does have a street value I understand. non-conforming beds are dangerous and illegal, but they have a street value too. So what's the solution? Arbitrary, or realistic?

 

[hastalavista]

I don't run into the FHA basement issue in my market (but, like you, maybe I will ).
I do run into issues where rooms that were not originally designed as bedrooms function and are valued as bedrooms in the market (a common example is a parlor room or even formal dining room in a Victorian within a downtown area).
In those cases I count the bedrooms as bedrooms and other rooms as other rooms. But if the other rooms have the same value as bedrooms, they offset any difference in the count. So, regardless of the room's original function, if it is used as a bedroom and the market values it as a bedroom, it has an offsetting value as a bedroom even if it isn't a bedroom (yes, there may be exceptions, but in general, this is how I see it).

Why can't you call it whatever it was designed as (basement bonus room) but value it as the market values it (or am I missing something)? :new_smile-l:

 

[prasercat]

I don't run into the FHA basement issue in my market (but, like you, maybe I will ).
I do run into issues where rooms that were not originally designed as bedrooms function and are valued as bedrooms in the market (a common example is a parlor room or even formal dining room in a Victorian within a downtown area).
In those cases I count the bedrooms as bedrooms and other rooms as other rooms. But if the other rooms have the same value as bedrooms, they offset any difference in the count. So, regardless of the room's original function, if it is used as a bedroom and the market values it as a bedroom, it has an offsetting value as a bedroom even if it isn't a bedroom (yes, there may be exceptions, but in general, this is how I see it).

Why can't you call it whatever it was designed as (basement bonus room) but value it as the market values it (or am I missing something)? :new_smile-l:

Good to hear from you Denis!

The issue is with the number of beds in a home being below the number that is mostly in demand in the neighborhood. In this community of old small modest ranches, the basement area is often the area where they can get that third bedroom and almost all are non-conforming. A 2 bedroom house (GLA beds + basment beds = 2) is obsolescent with respect to a 3 bedroom house. If I'm comparing a 3 bed GLA house with no significant basement with a home that has 2 beds in GLA and 1 non-conforming basement bed. In some markets, both of these homes should NOT be obsolescent with respect to bedrooms since both have three beds. If apples to apples (always preferable), comparing two homes with basements, one has 2 beds in GLA and the other has 3 beds in GLA. The 2 bed house has 1 non-conforming bed in the basement and the 3 bedroom house has no bed in the basement, seems that both satisfy the market requirement, unless I arbitrarily remove the 1 nonconforming bed from the analysis. This is neighborhood specific - I'm not making a generalization.

The problem is, by removing the non-conforming beds from the analysis, I'm changing the total bed count of the homes for some of them to an obsolescent number (under 3) for the entire home. This obsolescence requires an adjustment; however, it would be wrong to adjust since it does not reflect market reality, only an arbitrary judgement not to include particular bedrooms that are present because there is some rule that nobody seems to care about when they buy and sell homes in this market.

 

[hastalavista]

Good to hear from you Denis!

The issue is with the number of beds in a home being below the number that is mostly in demand in the neighborhood. In this community of old small modest ranches, the basement area is often the area where they can get that third bedroom and almost all are non-conforming. A 2 bedroom house (GLA beds + basement beds = 2) is obsolescent with respect to a 3 bedroom house. If I'm comparing a 3 bed GLA house with no significant basement with a home that has 2 beds in GLA and 1 non-conforming basement bed. In some markets, both of these homes should NOT be obsolescent with respect to bedrooms since both have three beds. If apples to apples (always preferable), comparing two homes with basements, one has 2 beds in GLA and the other has 3 beds in GLA. The 2 bed house has 1 non-conforming bed in the basement and the 3 bedroom house has no bed in the basement, seems that both satisfy the market requirement, unless I arbitrarily remove the 1 nonconforming bed from the analysis. This is neighborhood specific - I'm not making a generalization.

The problem is, by removing the non-conforming beds from the analysis, I'm changing the total bed count of the homes for some of them to an obsolescent number (under 3) for the entire home. This obsolescence requires an adjustment; however, it would be wrong to adjust since it does not reflect market reality, only an arbitrary judgment not to include particular bedrooms that are present because there is some rule that nobody seems to care about when they buy and sell homes in this market.

It has been a very long day for me, and my brain is not functioning that well (although that can happen no matter how long the day!).
I still don't see the issue: House A has no basement and 3-beds. House B has a basement with an area that functions as a bedroom and has 2-beds for its above ground living area. Market values both homes as-if they were 3-bedrooms. Assuming there is no prohibition against valuing the basement area as "basement area" with its value equal to the 3rd bedroom, the market's reaction is appropriately reflected in the valuation analysis; further, since the market values the area equally as a 3-bedroom, I don't see any FO as well.

Again, I may be too tired to grasp the significant issue (so I'll follow the discussion as an observer... at least for tonight!).