Living Area Below Grade

[Michael Geis]

I could use some help on this:

I have completed and appraisal from plans and specs. The house has a finished, walk out basement that is every bit what the above grade living area is. Per the last version of the Fannie Mae Guidelines Page 21: "living area is not included regardless of quality of finish or the presence of windows." "We understand that some markets consider a finished lower level area as living space. If this is the case, explain the basis for this conclusion in your report and be consistent in your comparisons in the sales comparison grid".

I followed this to a T. It is clear from the comparables that the below grade area is considered living area in my market. The comparables with below grade living area sell for the same price per sq. ft. as homes with the entire GLA above grade. All of the MLS data considers this area as GLA. If the below grade living area is backed out of the GLA the price per sq. ft. of those comps will be over 50% more than that of the homes with all living area above grade. All of this is explaind in detail in the report.

Now I have the head underwriter at a local bank, who claims to be an experienced appraiser, all over me. He says this violates Fannie Guidelines and that I should back out the lower level so that the report is in compliance. What this so called Guru doesn't realize, is that if I back the lower level out, the report will be way worse because all of the adjustment limits will be grossly exceeded.

PLUS, he made the remark that I can lower the value a little and it won't hurt their loan as if I over-inflated the value. At this point, I'm totally P.O.d about this.

Please advise before I tell this clown where to go

 

[Chris Colston]

Basements? What's a basement? :lol:

Just kidding....I've worked in markets with basements, walk out or otherwise. The mere terminolgy "walk-out BASEMENT" should give you a clue. If any part of the foundation is below THE grade, that entire area is considered as basement. Back out the basement area from the total GLA and adjust for it in the BASEMENT section of the grid. That's why there are 2 lines for basement on the grid. If the finish is comparable to the SF adjustment for the main living area, then use that same adjustment for the basement sf. So instead of saying the total GLA is 1800 sf, you will say the GLA is 900 sf and the basement is 900 sf (or whatever it is) and adjust accordingly.

I might suggest you get a copy (if you don't already have one) of ANSI standards. There is a "sticky" for them at the top of one of the sections of the forum.

 

[Wendy]

Chris, as usual, gives good advise. I'd back it out also.

Don't be upset that you have an underwriter trying to follow guidelines. He's just trying to do his job with the same flawed tools as the rest of us. Also, the suggestion about lowering value may just be because the borrower is well qualified and not trying for the max amount.

Underwriters in general are a pita (I'm sure they say the same about us), but at least this one isn't asking you to commit fraud or over inflate values.

 

[Ray Miller]

I would back out the lower level. Then look for sales that have the same GLA on the main level with some basements that are finished.

In the area I cover there can be big difference in the below grade value of GLA.

Run your paired sales and regression analyses and see what it tells you the value of the lower level GLA is by its self.

 

[bradellis]

Mike,

That bank appraiser is correct. Yes, I know this will make the report look funny and may cause your gross/net adjustments to exceed guidelines. Hoqwever, this is all prety much set in stone. There is an ANSI standard out there for it. Fannie was on that committee and they have adopted it.

There is, however, absolutely nothing that prohibits adjustments for below grade space at the same level as above grade space- depends upon your market, and you already told us your market pays the same per SF. Go ahead and have at it!!

As to lowering value, that is something that is up to you and your analysis. I do not blame you for being ticked- but I sure would ask that reviewer how he concluded that you were too high. Seems he has done an appraisal since he offered an opion of value. Wonder if he followed USPAP????????

Brad

 

[Michael Geis]

I understand and agree with what you are all saying. However the Fannie Mae Guidebook for appraisers also says on page 21 that "some markets consider below grade finish as living area. If this is the case, explain the basis for the conclusion in your report and be consistent in your comparison."

As far as matched pairs and market analysis goes, it's pretty clear to me. There are two comps in the report that were marketed including the basement in the GLA. These comps sold for about 120 per sq. ft. which is consistent with construction costs for this type of property. The price per sq. ft. without the lower level is nearly $200. This is way out of line for the area. I am also doing a new construction that is on a marina. This house is nearly 3,500 sq. ft. on a crawl. The lot cost on this property is $175,000 vs. $50,000 for the property that we are discussing here. The price per sq. ft. on the marina property is $211.00 including the lot. That is part of the basis on which I'm saying that there is pretty strong evidence that the below grade area in these higher end properties shoule be included.

I know that I'll end up backing this out (which I do understand is by the book) and creating one ugly looking appraisal. I figured going in that they would have more of a problem with the huge adjustments and exceeding all the adjustment limits than with putting the lower level into the GLA. It figures that I made the wrong call. I just get sick and tired of these underwriters etc... telling me what to do all the time as if they know more than I do about appraisals.

Thanks for the input everyone.

 

[Restrain]

Yes, underwriters want this area separate and guidelines say it should be separate. HOWEVER, the comment that "some markets consider this living area", especially in the area of walkouts is also correct. As long as you explain how and why, you should be o.k. with Fannie.

 

[Mr Rex]

If you have 2 comps on basements that have the below grade area included in MLS as above grade, call the realtors and find out how much of the total is below grade and use it in your report that way instead of all above grade (Even if reported in MLS as above grade doen't make it right or make it OK for you to report it as such). Now your adjustments aren't so out of whack and you have proven to the underwriter that basement homes in the area are marketable and that indeed the below grade space is similarly valued as above grade.

 

[xm72mhd]

I've been getting e-mails that the Denver MLS is now officially listing walkouts as above grade (to avoid confusion ) and I've noticed that other listings around the state have been doing the same unofficially and not consistently. I think its just a matter of time until we see the same thing for basements. I'm not sure what the motivation for the drift is, but accuracy for our benefit doesn't seem to be it.

 

[The Warrior Monk]

One of the ways I look at is whether the home is functional or not without the basement. Let's say the lower level of the home is partially below grade, walkout on one side, and contains the kitchen/living room/dining room. If this is counted as basement, then there is no kitchen/entertaining areas in the GLA.

On a few occasions I have considered part of the lower level in the GLA and part as basement. An example of this is when the front entrance is through the lower level. I might include just the entrance area in the GLA and the rest of the lower level in the basement area.