Walk Out Basement Question.

[ses76]

Thanks for any help with this! Another question about what applies to GLA and how. We are about to have an appraisal for a re-fi and are wanting to avoid PMI. We have a walk-out basement that is 500sqft below grade, 587sqft above grade (don't know if that's the correct term)... It's basically a big L-shaped room with 4 windows and french doors. It's finished simply ceiling, walls, carpet (as just one big room) and there's a small full bath.
We are in Massachusetts.
Does the basement apply to GLA and if so how? Does it just 'depend' on the comps or on the particular appraiser? It seems like it should be a yes or no question but I'm gathering that's it's not! I hope there's some formula or something you guys can share. Also if it's just 'no' I'd love to know ahead of time....
Thanks again for any info!!
~Susan in MA

 

[Paul Isolda]

Grade is the highest point dirt hits the foundation. Any finished area lower than that is below grade. It also is how the space functions within the dwelling. In New England, buyers typically expect to walk in the front door and find the living room, dining room and kitchen. The typical perception is that when you go down from there you are below grade. The value of below grade finished living area is usually less than that of above grade but depends on a number of factors, exposure (how the space feels) and quality of finishes can make a significant difference in how much below grade living area contributes to value.

 

[Thomas Fiehler]

Generally, if any part oa a level is below grade then the entire level is considered below grade. I have a ranch with a walkout basement. Even when I finish the basement later this year, I will still have a ranch with a finished basement.

 

[Metamorphic]

Basement areas are correctly not counted in GLA, even if they are finished to GLA standards. But sometimes they get included anyway. When you're talking walk out basements there's even more confusion, but technically, if there is dirt against any wall of that level its a basement and therefore not GLA. Some appraiser will nibble around the edges of that rule when its a walk-out, barely below grade, and its consistent with local standards for the area. Other appraisers will not count it as GLA, but will value that space in the appraisal as if it were GLA.

This is really a situation that the not treated very well or consistently so its hard to say how it will be treated in your appraisal.

 

[timd354]

Thanks for any help with this! Another question about what applies to GLA and how. We are about to have an appraisal for a re-fi and are wanting to avoid PMI. We have a walk-out basement that is 500sqft below grade, 587sqft above grade (don't know if that's the correct term)... It's basically a big L-shaped room with 4 windows and french doors. It's finished simply ceiling, walls, carpet (as just one big room) and there's a small full bath.
We are in Massachusetts.
Does the basement apply to GLA and if so how? Does it just 'depend' on the comps or on the particular appraiser? It seems like it should be a yes or no question but I'm gathering that's it's not! I hope there's some formula or something you guys can share. Also if it's just 'no' I'd love to know ahead of time....
Thanks again for any info!!
~Susan in MA

The correct way GLA for most mortgage lending appraisals is calculated is that if any portion of that level is located below grade, then nothing on that level is including in the above grade Gross Living Area and the whole level is considered to be below grade. However, that does not mean that the finished area that is located on the below grade level does not have value, and, in some areas and some housing designs, it is possible that the value of finished living area located on a below grade level, especially a walk out level, may be similar to the value of finished living area on a level that is located above grade. That being said, in some market areas and with some house designes, the difference in value between above grade and below grade finished living area may be substantial.

 

[Mztk1]

I'll go a bit against the wisdom of the others here. There is no set answer on this question. We have ANSI-Z765-2003 which says it is not to be included in finished area. But except in a few states - and I don't believe MA is one of them - we are not required to follow the ANSI method. Also Fannie Mae Guidelines, which are guidelines so by definition they are not written in stone, says we should keep the area from living area but then makes exceptions like when the subject would not compare properly against the other sales - in other words, if the market views the area as living area and it is less misleading to show it that way on our report, then we should count it as living area.

Like everything else in this field, it comes down to the market. Guidelines are purposefully flexible and the appraiser has to remain flexible as well.

I did an appraisal on a tri-level house just a week ago. The lower of the three levels was about 1' below grade in the front. An anal appraiser, a literalist who ultimately dictates value instead of trying to find what the market value is, would consider that first level as a basement and say "That the right way". It is easier that way when it is black and white. But I looked through the market area and found no recent sales on similar houses; so, I went back 3 years and found 8, all with the slightly below grade lower level, and was able to demonstrate by way of how they were marketed, what they sold for relative to other sales in the market, etc., that the lower area is viewed as GLA by the market. Therefore, I did as well.

Appraisers have to stop short of dictating what the market does; it is the market that must dictates what we do.

 

[BRCJR]

.....................................Appraisers have to stop short of dictating what the market does; it is the market that must dictates what we do......................................................................................................

I agree with this mindset 100%. The market must tell you the answer to this and any other unique situations.

 

[JasoninAK]

Where I live people build walkout basements into hills a lot. If it is finished space the market views it as living area. Generally there are enough homes built like this where I can compare it to other homes with daylight basements, so although the report will only list the GLA as the above grade living area there is certainly a lot of value given to the basements as they are compared to similar properties.

 

[Mike Garrett RAA]

The issue is..."how we have to report GLA" to be in compliance. If it is above grade it is GLA, if it is below grade ... it is not.

A good appraiser might adjust both the above and below grade at the same dollar per square foot amount which then replicates the market reaction.

This is another example of trying to fit round pegs into square holes (poorly designed form). One size rarely fits all.