FHA-non-conforming basement bed approach

[prasercat]

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!).

The problem being, this is an FHA/HUD appraisal and HUD/FHA would not recognize the subject's bedroom in the basement as a bedroom, since it is non-conforming. If I treat the subject this way, then I need to treat the comps that way to be consistent in my methodolgy. However, it just so happens the subject has the required three in GLA, so it isn't a significant issue for the subject, but some of the comps will go from three bed homes to two bed homes if I do the same to them in the analysis..

 

[Michigan CG]

Consistency in appraising is an important discussion. It is my opinion that I can defend any report I write because I report, for residential, by ANSI standards. Per ANSI any “bedroom” in the basement, no matter egress is not ABOVE GRADE. The 1004 report asks for ABOVE GRADE improvements. There is a separate section for basement area and basement finish areas.

That being said there are market areas that recognize items that do not meet ANSI standards. In the OP case it is basement areas. It is not against appraisal practice to value below grade area the same, or close to, above grade. The valuation should include narrative as to why the local market accepts this area similar to the above grade area.

Six years ago I was looking at homes in a very nice neighborhood. The master was on the first floor and the three other bedrooms were in what ANSI would call the basement. I joked with the builder that he had a 3,000 SF one-bedroom home. He was not amused. The below grade had, in my opinion the same value as the above grade, but it is not above grade and technically the home was a one-bedroom home.

The solution to the OP is very simple. It is narrative discussion of the subject and the comps in the appraisal report. Narrative discussion in appraisal reports are the major shortcoming in residential practice. Just explain, explain and explain some more.

It is my opinion that in order to get a residential license a narrative appraisal of a home should be mandatory.

 

[prasercat]

Consistency in appraising is an important discussion. It is my opinion that I can defend any report I write because I report, for residential, by ANSI standards. Per ANSI any “bedroom” in the basement, no matter egress is not ABOVE GRADE. The 1004 report asks for ABOVE GRADE improvements. There is a separate section for basement area and basement finish areas.

That being said there are market areas that recognize items that do not meet ANSI standards. In the OP case it is basement areas. It is not against appraisal practice to value below grade area the same, or close to, above grade. The valuation should include narrative as to why the local market accepts this area similar to the above grade area.

Six years ago I was looking at homes in a very nice neighborhood. The master was on the first floor and the three other bedrooms were in what ANSI would call the basement. I joked with the builder that he had a 3,000 SF one-bedroom home. He was not amused. The below grade had, in my opinion the same value as the above grade, but it is not above grade and technically the home was a one-bedroom home.

The solution to the OP is very simple. It is narrative discussion of the subject and the comps in the appraisal report. Narrative discussion in appraisal reports are the major shortcoming in residential practice. Just explain, explain and explain some more.

It is my opinion that in order to get a residential license a narrative appraisal of a home should be mandatory.

I appreciate your input.

I'm actually surprised that there isn't someone out there that does a lot of these urban FHA assignments in non-conforming basement bedroom neighborhoods and has come to some standard way of handling the issue.

Sure, I can hold to some standard, whether it be dependent on permits, building codes or FHA rules in whether to assign values to bedrooms; however, that is arbitrary. It isn't about "market value" it is about what we are going to value because we decided it in our heads, not empirically and regardless of what the market values - this is not logical. It is a conundrum, a failure of reason. There is no narrative for this.