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FNMA guidelines for finished basement areas

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PhillyApp

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Aug 8, 2005
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Certified Residential Appraiser
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Pennsylvania
I havea question regarding finished basement areas, as it applies to FNMA guidelines.

I complered a 1500 sg ft condo with half theliving area below grade specifically bedrooms and bathrooms were below grade· I understand FNMA allows us to complete this type of report by calling the unit above graade which i used to do prior to UAD·

The lender had the report reviewed and stated that he would haveopted to call the area above grade and cited FNMA guielines· He clearly stated that either way would be correct·

Underwriter is asking me to use the reviewers lrecomendationas opposed to the format i used·

Can I stick to my report as delivered ·
 

Mike Kennedy

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Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
"Part B, Origination Through Closing
Subpart 4, Underwriting Property
Chapter 1, Appraisal Requirements, Appraisal Report Assessment
April 15, 2014
"

"Layout and Floor Plans
Dwellings with unusual layouts and floor plans generally have limited market appeal. A review of the room list and floor plan for the dwelling unit may indicate an unusual layout, such as bedrooms on a level with no bath, or a kitchen on a different level from the dining room. If the appraiser indicates that such inadequacies will result in market resistance to the subject property, he or she must make appropriate adjustments to reflect this in the overall analysis. However, if market acceptance can be demonstrated through the use of comparable sales with the same inadequacies, no adjustments are required.

Gross Living Area
The most common comparison for one-unit properties, including units in PUD, condo, or coop 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."



(oh crap - wait a minute...:unsure:.........hey "Joe" add this or we'll have every re agent and every loan officer and every banker breathing down our necks)

"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."

Printed copies may not be the most current version. For the most current version, go to the online version at
https://www.fanniemae.com/singlefamily/originating-underwriting.581

Typical Fannie-speak.......

do NOT include
do NOT include
do NOT include
do NOT include
do NOT include

Lender:
"oh what the hell - g'head (especially if ya need to inflate the GLA to hit the Bullseye shhhhhh don't repeat that to anyone) just be sure you explain why you did it - and oh yeah - make damn sure your E&O insurance is active - and don't forget to make sure you type your Name and License number correctly. After all, should the chit hit the fan down the road and Fannie makes us "eat" the "inflated" loan - it's your chest the bullseye is painted on - not ours - YOU are the expert - we're merely a client":flowers::new_littleangel:.
 
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PhillyApp

Thread Starter
Member
Joined
Aug 8, 2005
Professional Status
Certified Residential Appraiser
State
Pennsylvania
Mike, thanks for the info....

I unfortunately deal with this a lot in my market. I made a decision after UAD as well as the fact that no one reads the reports anyway including the scrubbers that they use to review reports, I would stick to strict compliance, specifically to be consistent across multiple reports. I hate it but am trying to remain safe and employable.

No one is disputing value, and I have a model match from 2 years ago...They just do not like the price per foot.

Reviewer stated that I could have taken either approach, but he would have called it all above grade.
 

CANative

Elite Member
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Jun 18, 2003
Professional Status
Certified Residential Appraiser
State
California
So Mike, are you saying that the GSE's inserted that bit about some instances where the below grade protocol doesn't work for the market at the urging of bankers in order for appraiser to hit a bullseye?
 

residentialguy

Elite Member
Joined
Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
Depends on how it functions. We have garden condos that are all partially below grade...so does that mean there is no GLA???? No, and the market won't think that either.

Are these the only bedrooms and baths? If so, I'd probably count it all as GLA.

Condo are unique. Condos in multiple floor buildings all function similarly as GLA, they don't have basements Some condos are setup like a sxs townhome with a basement.

What's the style of these condos. Stacked (i.e.Highrise, lowrise) or SxS townhouse style?

If you have a stacked condo building, then count it as GLA and make your floor location adjustment on how that affects the value to units that are similar, just located higher up.
 
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Joe Flacco

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Jul 31, 2013
Professional Status
Certified Residential Appraiser
State
Maryland
When appraising those types of condos I typically include all living space on the above grade line and make the adjustment for being a basement unit on the "floor" comparison.

The only time I use the below grade section on the 1073 is when the property is townhouse with condo ownership.
 

PhillyApp

Thread Starter
Member
Joined
Aug 8, 2005
Professional Status
Certified Residential Appraiser
State
Pennsylvania
I understand the differences in opinion and I would agree with the consensus and in fact followed the same logic. However, considering UAD and the threat of blacklisting from Fannie and Freddie, I chose to follow the strict guidelines, it is a choice after all, either way is correct.

Question is can I stick with my report or can the lender require me to use the alternate guideline?
 

Joe Flacco

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Jul 31, 2013
Professional Status
Certified Residential Appraiser
State
Maryland
The market views it as a 1500 sf condo that is located on a partially below grade level. Not a 750 sf condo with 750 sf basement. IMO

How would you handle a 1 level condo that is in the basement level of a building?
 

residentialguy

Elite Member
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Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
I understand the differences in opinion and I would agree with the consensus and in fact followed the same logic. However, considering UAD and the threat of blacklisting from Fannie and Freddie, I chose to follow the strict guidelines, it is a choice after all, either way is correct.

Question is can I stick with my report or can the lender require me to use the alternate guideline?
You can stick with the report...it's just messier.

Critical questions:
What adjustments did you give for GLA and Below Grade?

Did you have a similar part below grade comp?
 
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