When Does a Basement Room Count as a Room?

[Buyer In VA]

My wife and I bought a three bedroom home several years ago. The home had a partially finished "walk-out" basement. By "walk-out", I mean to say that our house is built on a hill; our back yard is downhill, so the back of our basement has a normal door and windows facing our back yard at ground level. We finished a bedroom in the back of the basement: complete with a closet, electrical outlets and overhead lighting, a duct to the central air and heat, a door, carpet, and a full window. I was told by do-it-yourself'rs that these details would turn my three bedroom home into a four bedroom home. So we went to refinance. The mortgage company required us to pay for an appraiser of their choosing--not an FHA loan, but a loan that follows FHA guidelines. The appraiser spent less than three minutes in our house: literally walking into each room, snapping a picture, and walking out. I think her boyfriend was waiting in the car. She saw the partially finished basement (no drop ceiling yet, but electrical, sheet rock, and paint) and snapped a picture of the basement bedroom. We asked specifically about the bedroom: if it would count as a bedroom or not. She gave us an answer that amounted to "maybe." Now we have the appraisal and our house is listed with the original square footage it had when we bought it--no square footage coming from the basement and listed with only three bedrooms. So all the comps on the appraisal are three bedroom homes--and none of these houses have basements finished or unfinished. Consequently, we can't refinance because the appraisal is too low. So my questions are: Are there guidelines for what constitutes a bedroom and when a basement gets counted in the square footage of the house? If so, are these federal guidelines or do they very from state to state? And is there a website somewhere where I can look this stuff up? My gut reaction is that we were hosed by an appraiser who was in a hurry to collect her pay, but I'm no expert. So I turn to you guys. Thanks, Buyer in VA.

 

[CANative]

Here is a quote from the Fannie Mae 2011 Selling guide...

Go ahead and read so you'll have the basics. Other appraisers will post on how to interpret this. A lot depends on your market and how buyers and sellers react to below grade living areas.

B4-1.4-14, Appraisal Report Review: Layout, Floor Plans, and Gross Building and Living Areas (04/01/2009)

Introduction

This topic contains information on layout, floor plans, and gross building and living areas, including:

Overview

Minimum Size

Evaluating Above-Grade Room Count

Below-Grade Areas

Appropriate Above-Grade and Below-Grade Comparisons

Gross Building Area

Overview

Dwellings with unusual layouts, peculiar floor plans, or inadequate equipment or amenities 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.

The appraisal must include appropriate adjustments based on how the subject compares to the comparable sales.

Minimum Size

Fannie Mae does not specify minimum size or living area requirements for properties (with the exception of Manufactured Housing; see Section B5-2.3, Manufactured Housing).

Evaluating Above-Grade Room Count

The most common comparison for one-unit properties is the above-grade gross living area.

Appraisers must be consistent when calculating and reporting finished above-grade room count and square footage for the gross living area above-grade.

A level is considered below-grade if any portion of it is below-grade—regardless of the quality of its finish or the window area of any room. A walk-out basement with finished rooms would not be included in the above-grade room count.

For units in condo or co-op projects, the appraiser must use interior perimeter unit dimensions to calculate the gross living area. In all other instances, the appraiser must use the exterior building dimensions per floor to calculate the above-grade gross living area of a property.

The following must be observed when calculating and reporting above-grade room count and square footage for the gross living area:

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.

Garages and basements, including those that are partially above-grade, must not be included in the above-grade room count.

Below-Grade Areas

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.

The appraiser must 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.

Appropriate Above-Grade and Below-Grade Comparisons

To ensure consistency in the sales comparison analysis, appraisers must compare above-grade areas to above-grade areas and below-grade areas to below-grade areas.

Appraisers 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, the appraiser must explain the reason for the deviation and clearly describe the comparisons that were made.

Gross Building Area

Gross building area:

is the total finished area including any interior common areas, such as stairways and hallways of the improvements based on exterior measurements;

is the most common comparison for two- to four-unit properties;

must be consistently developed for the subject property and all comparables used in the appraisal;

must include all finished above-grade and below-grade living areas, counting all interior common areas such as stairways, hallways, storage rooms, etc.;

cannot count exterior common areas such as open stairways.

Fannie Mae will accept the use of other comparisons for two- to four-unit properties (such as the total above-grade and below-grade areas) provided the appraiser:

explains the reasons he or she did not use a gross building area comparison, and

clearly describes the comparisons that were made.

 

[Midwest Guy]

For basement bedrooms, I want a fireman's window. (See recent code.) You have described a walkout with most likely a fit to that. Finish is most likely satisfactory. Considering a basement finish room something and reporting it are two different things.

We appraisers are stuck with forms, when doing mortgage work. Above grade has been clearly explained to us as front door and above. Your basement finish is basement finish and most likely valuable. Please don't blame us that finished area and room is not part of the room count. We must describe this area sepately. On the page with the sales grid, you will see basement finish.

FNMA (Fannie Mae) is the maker of most mortgage appraisal forms. On the bottom left of your form, you will most likely see Freddie Mac Form 70 and on the bottom right Fannie Mae form 1004.

Your "Appraiser" that ran through your home sounds like might have been part of what we commonly refer to as being from a "Puppy Mill" or "Appraiser Mill." Underqualified folks running for "Inspections" and form fillers in the office making reports appear presentable to the lenders.

 

[CGgonnabee]

CANative is right...the room count is the room count according to the definition. I usually explain above grade room count to folks in my market ....finished basements are very common. I also explain how the forms are sort of funny, but that value will be given to the finished areas below grade and attempt to explain how this is handled on the form (UAD has complicated my explanation, however). A detailed description of the below-grade improvements is included in the addenda of my reports. I make it a point to include photos of improved areas below-grade and label them appropriately.

Three minute interior inspection? Crazy! It takes me 3 minutes to remove my shoes, present my business card and introduce myself (not necessarily in this order).

 

[HF Mudd]

The American National Standards Institute (ANSI) defines gross living area; this is generally a nationally-accepted method for calculating the square footage of a single family dwelling.

According to ANSI standards:

Above- and Below-Grade Finished Areas

The above-grade finished square footage of a house is the sum of finished areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade.

You can see the full guide (ANSI Z765-2003) at the link below:

http://www.sira.org/pdf/ansi20standards z765_2003.pdf

 

[Delta85]

Depends on the market and how it views basements. In my market a basement area is any area with even a portion below grade. Even if 95% is above grade walk out.

Unfortunately many homeowners don't understand that although finished basement areas will bring additional value (based on the quality and extent of the finished areas) in most cases these finished basement areas do not add to the gross living area or the room count of the home.

The appraiser spending 3 minutes in the home is a seperate issue. I'm thinking you might be exaggerating based on your displeasure with the results of the report. Remember appraisers are not building inspectors and we don't need to spend an hour inspecting the average home.

If you feel the report was rushed or inaccurate either hire an independent appraiser to do a seperate report or request a reconsideration of value by doing the homework and investigating sales in the area that you feel support the value you have in mind. Investigate how your market treats basements that are part walk out. And remember, you have to choose comparables not by price but by the same criteria that the average appraiser in your area would use. Perhaps ask a realtor friend to pull some comparables.

Good luck.

 

[Smokey Bear]

Your problem isn't the bedroom count, it's the fact that the appraiser didn't do her job. BTW, was the appraisal signed by a woman? Sounds to me like maybe she was a 'runner'. Did she measure? Take any notes? The fact that she didn't use ANY comps with a basement is a problem. Just because your basement space and rooms don't fit into the GLA or the above grade room count, doesn't mean they shouldn't be listed on the grid in the basement section, and the basement should have been matched on at least one comp.

Sounds to me like the appraisal is crappy, but not for the reason you're focused on. She should have found similar sales and compared above grade AND basements.

You need to explain all this to your lender, especially the part about her only being there a few minutes, no measuring, no notes, and that the appraisal is INACCURATE because it doesn't use any comps with basements. Insist that the appraisal be corrected or that they get another appraisal, on THEIR dime, since the failed in their due diligence to hire a competent appraiser.

 

[Mountain Man]

One room in an unfinished basement doesn't make a 4BR house. It has even less appeal or utility if you have to walk through an unfinished basement to get to the one finished room. However, per the guidelines posted above, basement is basement... period. Even if completely finished, it's a finished basement and not GLA (gross living area), your house would still be considered 3BR. The finished basement may bring more value, but how much more is determined by the local market and quality of finishes.

 

[Tony V]

A basement is a basement is a basement...

If this portion of your original post """ I was told by do-it-yourself'rs that these details would turn my three bedroom home into a four bedroom home"""
was your only source then you really need to rethink what you consider to be reliable information.

 

[TN Pro]

Can you attach the report in pdf?