USPAP -- Below Grade

[Charles Knutson]

In the Metro Denver area, lower level finished areas that are 60% above grade in bi-level and split-level homes are treated as above grade GLA. That's what I was taught as a trainee (60% above grade) and it conforms to the MLS practice.

When it comes to county assessors, most treat this space as above grade -- although Arapahoe County does not.

To me, the 60% rule of thumb makes sense -- if a standard 44" high egress window is at grade, then this type of lower level is effectively above grade. This rule applies to split levels, but not ranches and two stories; in those types, it is considered garden level basement.

The most important thing is to be consistent between the subject and comps -- if you treat it as GLA or basement in the subject, do the same in the comps. Either way, a comment as to what the space is and why it was considered one way or another will clarify the issue in the report.

 

[Lawrence R.]

XI, 405.05: Gross Living Area (11/01/05)
The most common comparison for one-family properties (including units in PUD, condominium, or cooperative 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. For units in condominium or cooperative projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area. In all other instances, the appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. Only finished above-grade areas should be used—garages and basements (including those that are partially above-grade) should not be included. We consider 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 and finished areas below-grade” line in the “sales comparison analysis” grid. To ensure consistency in the sales comparison analysis, the appraiser generally should compare above-grade areas to above-grade areas and below-grade areas to below-grade areas. The appraiser may deviate from this approach if the style of the subject property or any of the comparables does not lend itself to such comparisons. However, in such instances, he or she must explain the reason for the deviation and clearly describe the comparisons that were made.

 

[MARKETVALUENOW]

What about a garden unit condo, where the whole thing is partially below grade, If we can't count that, than I own a condo that is 0 sq ft with a 900 sq ft full finished basement???

I say apples to apples. Count it on all or non, as long as it is consistent and explained properly. In my area, a bi-level sq ft typically includes the extire house and would be similar to a 2 story on a slab.

 

[Mike Kennedy]

poster delete dupl.

 

[Lawrence R.]

What about a garden unit condo, where the whole thing is partially below grade, If we can't count that, than I own a condo that is 0 sq ft with a 900 sq ft full finished basement???

I say apples to apples. Count it on all or non, as long as it is consistent and explained properly. In my area, a bi-level sq ft typically includes the extire house and would be similar to a 2 story on a slab.

Based on what I read in the guidelines above, Condos are always counted as GLA, as it says in the first paragraph.

 

[Couch Potato]

YES, Fannie requirements are a Supplemental Standard, but nowhere in Fannie, that I know of, does it specifically tell us how to measure a house.

Granted below grade is not in GLA in my market, but MAYBE in some markets it's considered to be included.

It's not a USPAP violation and I don't think Fannie has any requirements regarding it either.

It is right there in:

Fannie Mae Single Family

2007 Selling Guide

Part XI: Property and Appraisal Guidelines

XI, Chapter 4: Reviewing the Appraisal Report (11/01/05)

XI, 405: Improvements Analysis (11/01/05)

XI, 405.05: Gross Living Area (11/01/05)​

Many changes were made to Fannie Mae guidelines for appraisals 11/01/2005, and some are as recent as 06/15/2007. Anyone who has not read through that section of the selling guide since that time is likely making repetitive errors in their appraisals. It is a boring, but necessary part of the job. Failing to be aware of client requirements is a USPAP violation. (Supplemental Standards no longer exist under that name as of the first of this year.)

 

[Caterina Platt]

KEY CHANGES IN USPAP AND ADVISORY OPINIONS


DEFINITIONS: The definition of Supplemental Standards was deleted.

• <LI class=kadov-p>The majority of appraisers, users of appraisal services, and enforcement officials recognize that Supplemental Standards include laws and regulations. Appraisers must comply with laws and regulations because of the nature of law itself, not because of USPAP. Thus, continued use of Supplemental Standards as a defined term was unnecessary.
  <LI class=kadov-p>Descriptions of “laws” and “regulations” are provided in the SCOPE OF WORK RULE based on their respective Black’s Law Dictionary definitions.
• The deletion of the definition removes specific recognition of Government Sponsored Enterprises (GSE) as a source of assignment conditions because they provide guidelines, which are not laws or regulations. However, the edits do not change 1) the necessity for an appraiser acting in compliance with USPAP to follow GSE guidelines where applicable; and, 2) the enforcement of USPAP, including those items necessary for competent performance and meaningful reporting.

Yes indeed, it did go away. From reading the above, my interpretation would be follow the guidelines where ever possible. Does it create a misleading report to split out the above and below grade living area in your report? Does it create a misleading report to include both in the 'Above Grade' area? That's going to vary from situation to situation. Only you can decide that one.

I'm with all above posters, that it should be based on our market reaction but what should be isn't always the case. Last year I did a beautiful, high end, home that was two levels built into the side of a hill. This design isn't particularly unusual, but in the subject's area, we had no similar sales. It was built by a small builder that generally did custom build to suits. I had standard two stories, but none with the same styling unless I went 35 miles south. This house looked like a single level from the street, but clearly was a two story from the rear. Technically, that was below grade living area per Fannie definition.

What a disgusting development that became with a hair splitting underwriter. I completed the form as we are told, I then had huge adjustments to above and below grade areas that basically cancelled each other out (I had to use the out of the immediate area sales for the market reaction which treated them just as a two story, but couldn't grid them due to the distance) I had one example of the same style home, but it was an active listing in the immediate area. The underwriter wanted to discount all the below grade living area. m2:

On one hand, I would advise to follow the guidelines. If you have similar comps, this shouldn't be a problem. On the other, I would certainly do whatever I could within legal and ethical means to avoid the same underwriter idiocy described above.

 

[MARKETVALUENOW]

Lawrence,

What you are refering too is how to measure a condo, it clearly states before and after that comment, that for one-family properties (Including condos, puds, and co-ops) that only fully above-grade sq ft should be counted.

 

[Manhattan value]

According to FNMA guidelines, ANYTHING below grade, either partially, or entirely, is basement. That includes homes built into a hillside.

I have had reviewer give me a hard time for just inches below grade.

 

[Riick]

According to FNMA guidelines, ANYTHING below grade, either partially, or entirely, is basement. That includes homes built into a hillside.
I have had reviewer give me a hard time for just inches below grade.

On other hand.. have done Split-Levels where family room is "below grade"
at front of property only, balance of room is at grade.
Builder just bermed-up earth at front.
Is that room below grade - I don't think so, neither did Lender when I explained layout.
Of course all the other Splits in the area same builder/layout - so in some sense, a moot point.