Understanding the measurements, calculations and room counts of your home on the appraisal
By Thomas Hardwick
At first glance, the concept of measuring a home, counting the rooms and reporting the results in the appraisal report appears to be fairly simple and straightforward. Can’t you just grab a tape measure, pencil and paper then measure all the sides of the house and calculate the size? If it is a box 2 story home, then you simply multiple times 2 and that’s your total square footage, right?
It is important to understand that when it comes to measuring a property, there is no one size fits all method employed by every appraiser, real estate agent, lender or governmental unit. As nearly all appraisers soon realize after entering the business, this means measuring a home and counting rooms can be as clear as mud.
There are generally recognized guidelines (including the Fannie Mae Selling Guide, FHA/HUD Handbook 4150.2, Employee Relocation Council (ERC) Appraisal Guide, American National Standards Institute (ANSI) Z765-2003, etc.). To varying degrees, these guidelines define Gross Living Area, Basements/Below Grade Floor Areas, Attics/Lofts/Low Ceilings, and Detached Buildings. Many of the guidelines are similar; however, some guidelines do not specifically address some aspects of measuring, while others have very detailed guidance.
Ultimately, as with other aspects of a valuation assignment, the appraiser and the lender should determine the level of detail necessary in calculating the homes square footage. The generally recognized guidelines may be excellent in communicating the square footage of a home in a flat to rolling subdivision neighborhood, while standardized guidelines may simply not be effective in an area of multi-level homes built into the side of a mountain.
Understand that the guidelines are meant to be applicable in all states and may be appropriate for the vast majority of appraisal assignments, yet, due the diversity of housing throughout the country, one guideline simply can’t account for every situation imaginable. Fannie Mae Selling Guide October 2013 recognizes their guideline does not fit all assignments when it notes: Appraisers may deviate from this approach (being Appropriate Above-Grade and Below-Grade Comparisons) if the style of the subject property or any of the comparables does not lend itself to such comparisons.
While usually not specifically required, to understand how the square footage is calculated, the appraiser should comment in the appraisal report on:
· The method(s) employed in developing the square footage of the home.
· The type of measuring device (metal or fiberglass tape measure, digital laser or ultrasonic unit, measuring wheel, etc.)
· The level of rounding (to the inch, to the tenth of a foot, to the half foot, to the nearest foot, etc.).
· Any limitations such as the inability to measure a side of a house due to not having sufficient access due to obstructions (trees, shrubbery, etc.)
What is Gross Living Area?
Fannie Mae, HUD/FHA, ERC and ANSI all state that dimensions are based on an exterior measurement of each floor of the home. To varying degrees, the different guidelines describe the modification of areas to remove unfinished or unheated sections of the interior.
Fannie Mae, HUD/FHA and ERC guidelines are also similar in not counting basements, regardless of finish, in Gross Living Area. ANSI, however, only notes a distinction between above-grade and below-grade areas.
Fannie Mae Selling Guide October 2013 (B4-1.4-14 Appraisal Report Review; Layout, Floor Plans and Gross Building and Living Areas) states: 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.
FHA/HUD guideline (Handbook 4150.2) states: Gross Living Area is the total area of finished, above-grade residential space. It is calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. Finished basements and unfinished attic areas are not included in total gross living area. The appraiser must match the measurement techniques used for the subject to the comparable sales. It is important to apply this measurement technique and report the building dimensions consistently because failure to do so can impair the quality of the appraisal report.
Employee Relocation Council (ERC) guideline (#5) states: Gross Living Area (GLA) is the calculation of the total living area in the residence expressed in square footage. This is calculated using exterior measurements (except condominiums and cooperatives), and is generally limited to the habitable above-grade living area only. Basements and attic areas (finished or unfinished) are not included in GLA, room and bath counts. However, they may make a valuable and significant contribution to the property value, and should be calculated and shown separately in the report.
American National Standards Institute (ANSI) guideline (Z765-2003) states: For detached single-family houses, the finished square footage of each level is the sum of finished areas on that level measured at floor level to the exterior finished surface of the outside walls.
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.
Garages and unfinished areas cannot be included in the calculation of finished square footage. Chimneys, windows, and other finished areas that protrude beyond the exterior finished surface of the outside walls and do not have a floor on the same level cannot be included in the calculation of square footage.
Determining Exterior Dimensions
The square footage used in a single family residential appraisal is based on measurements of the exterior dimensions of the home. The appraiser selects a measurement starting point of the home, usually a corner. Some appraisers find it helpful to create a rough sketch of the entire structure before measuring, while others prefer to sketch and measure at the same time. From the starting point, then proceeding around the entire home, a recording of all measurements of exterior walls to the inch, including angled walls, is made. It is important to note, that terrain, landscaping or obstacles, can affect the ability of the appraiser to access direct measurement of all sides.
Each floor should be measured from the exterior, making sure all overhangs and cantilevered sections are added. Most lenders also require the appraisal report’s building drawing to include measuring any porches, decks, patios and outbuildings. Since measurements are taken at ground level, multi-story homes are based on reference points on the ground floor and supplemented by interior measurements.
One of the reasons that the appraiser should measure all the sides to the inch precision level, even on simple rectangular homes, is to verify the accuracy of the measuring. The sum of parallel sides (accounting for any angles or bays) should be equal. Considering all four sides of a home, if the both sets of parallel sides are equal, then the building is said to be “square”.
Modifying the Measurements from the Inside
Once inside the home the appraiser should modify the measurements to remove the garage space, multi-story open areas (such as vaulted, cathedral or volume ceilings), unfinished/unheated bonus rooms, enclosed porches, etc.
ANSI has specific guidelines on how to properly remove the garage or enclosed porch square footage and which wall to use for such purpose. ANSI also has guidance on areas, such as a 2 story open foyer or living room, stating: Openings to the floor below cannot be included in the square footage calculation. However, the area of both stair treads and landings proceeding to the floor below is included in the finished area of the floor from which the stairs descend, not to exceed the area of the opening in the floor.
ERC’s guidelines are very similar to ANSI stating: ERC guidelines specify that the contribution to gross living area of any “open two-story” area should be calculated on the basis of floor area only. However, the area of stairways and landings is included in the GLA calculation for each level.
Attics, Lofts & Low Ceilings
The ANSI guideline states: To be included in finished square footage calculations, finished areas must have a ceiling height of at least 7 feet (2.13 meters) except under beams, ducts, and other obstructions where the height may be 6 feet 4 inches (1.93 meters); under stairs where there is no specified height requirement; or where the ceiling is sloped. If a room's ceiling is sloped, at least one-half of the finished square footage in that room must have a vertical ceiling height of at least 7 feet (2.13 meters); no portion of the finished area that has a height of less than 5 feet (1.52meters) may be included in finished square footage.
The Fannie Mae Selling Guide does not specifically identify any requirements for inclusion of finished attic spaces or ceiling heights.
The ERC guideline also states: If a room, which meets Guideline #5 and should be included in GLA, has a sloping ceiling, the appraiser should consider the 5-foot height rule for calculating livable space. Included in the calculation would be only that floor area for which there is a vertical distance of 5 or more feet between floor and ceiling. It is noted however, that ERC #5 also states: The utility of finished attic areas frequently differs from that of main-level living areas due to differences in accessibility and energy efficiency. Thus, the contributory value can differ substantially from that of main-level living areas. In order to deal with this situation more effectively, this guideline states that attic areas (finished or unfinished) are not to be included in gross living area calculations.
Basements and Below Grade Finished Areas
An area of large disagreement in the real estate community particularly between real estate agents/homeowners and real estate appraisal professionals is what is or is not considered a basement. Some real estate agents will report a ranch style home with a finished walkout basement on a listing grid as being a 2 level home and include both levels of square footage in “Gross Living Area”. How a real estate agent enters square footage using its local or regional Multiple Listing Service (MLS) is usually defined by that MLS through bylaws or is entered by local custom of the market. In the appraisal report, the appraiser is using defined industry standardization methods and is not based on how a real estate agent reports a property for marketing purposes.
It is important to understand that one reason for the guidelines on appraisals is for consistent reporting of the square footage of the property.
ANSI simply states: The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade.
FHA/HUD guideline also succinctly states: Finished basements and unfinished attic areas are not included in total gross living area.
The Fannie Mae Selling Guide is very clear on what is a basement or below grade stating: 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.
Fannie Mae also specifically recognizes that all basements are not created equal and states: 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.
The ERC guideline is more nuanced than Fannie Mae, FHA/HUD and ANSI in below grade living areas as it states: When areas that are 50 percent or more above grade are fully finished and equipped with a design and arrangement of windows adequate to provide the “look and feel” of an above-grade-living area, the appraiser can opt to include these areas in the gross living area calculation.
Room Counts, Bedrooms & Baths, Garage Sizes
The Fannie Mae/Freddie Mac form appraisal report, used by conventional mortgage lenders as well as FHA & VA, describes a house by the total room count, the number of bedrooms and the number of bathrooms it contains. For example, reported above grade room count on the form of 6/3/1.1 describes a house with 6 rooms, 3 bedrooms, 1 full and 1 half bathroom. (A 1.2 baths would be 1 full bath and 2 half baths). Like basement square footage, the finished rooms in a basement are identified separately from the above grade room count.
In general, a room is a kitchen, a bedroom, a living room, a dining room, a family room, an office, a study or a den. Rooms do not have to be divided by walls as long as there is space for the intended function. In many markets, an open concept design or floor plan has been used, which typically encompasses a kitchen, dining room and living room. In such situations, the open area, sometimes referred to as a “Great Room”, would usually be counted as three rooms even though there are no walls to separate those areas. Bathrooms, breakfast nooks, storage rooms, mudrooms, laundry rooms, foyers and closets are not usually considered in the total room counts.
If you ask a group of real estate industry professionals (appraisers, real estate agents or lenders) what is considered a bedroom or what is the difference between a den and a bedroom, it would not be uncommon to get differing opinions.
Some industry professionals will say that a bedroom must have a closet to be “counted” as a bedroom. Fannie Mae Selling Guide does not specifically address a bedroom closet. The Dictionary of Real Estate Appraisal (Third Edition) published by the Appraisal Institute states: No national standard exists on what constitutes a room. Local codes may specifically define a bedroom.
The HUD Handbook states: Bedroom Egress- All bedrooms must have adequate egress to the exterior of the home. If an enclosed patio (solid walls) covers the bedroom window, it is possible that the bedroom won't qualify as a habitable bedroom. Security bars are acceptable if they comply with local fire codes. Occupants of a bedroom must be able to get outside the home if there is a fire. HUD further elaborates specifically on basement bedrooms that: As a rule basement space does not count as habitable space. If the bedroom does not have proper light and ventilation, the room can not be included in the gross living area. The following requirements apply to the valuation of below-grade rooms:
· The windowsill may not be higher than 44 inches from the floor.
· The windowsill must have a net clear opening (width x height) of at least 24 inches by 36 inches.
· The window should be at ground level; however, compensating factors may allow less.
Generally, a bedroom is considered a room that a conventional bed will fit in with either a closet or space for a closet or wardrobe cabinet and also has a window which provides an emergency exit, natural light and ventilation.
A home built in the 1880’s may not have built-in closets in the rooms designed for sleeping, while it is standard to have a bedroom closet in a home built in the 1980’s. The appraiser must consider the intended use or function of the room. A room off the foyer with a closet may technically be able to be counted as a bedroom, however, if the intended to be used as a den, then it should be counted as a den in the appraisal report.
Bedrooms should have direct access to a hallway, living room or other common area. You should not have to walk through one bedroom to get to another.
Occasionally, you may read where a real estate professional describes a property as having a “non-conforming” bedroom, particularly in rooms below grade. Quite simply, a bedroom that is not conforming to the recognized standards, including proper window egress, of a bedroom should not be called a bedroom.
Industry Standardization of Fannie Mae/Freddie Mac Form Reports
For many years, appraisers completing assignments for the majority of lenders have used form reports created jointly by Fannie Mae & Freddie Mac. In an effort at standardization and to provide consistency to the reports, Fannie Mae & Freddie Mac established guidelines called the Uniform Appraisal Dataset (UAD) that became effective in 2011. Essentially, the UAD guidelines mandate the way many individual fields in the appraisal form reports are entered. Besides the format requirement of full baths/half baths (1.1, 1.2, 2.2, etc.), another example of UAD mandates is regarding the number of garage car storage.
Fannie Mae and Freddie Mac Uniform Appraisal Dataset (Specification Appendix D: Field-Specific Standardization Requirements Document Version 1.6) states the reporting format for garage or carport car storage is: # of Cars - Numeric to 2 digits, whole numbers only. In practical terms that means, what a real estate agent, homeowner or buyer would call a 2.5-car garage is reported on the appraisal form as either a 2-car or 3-car garage. Of course, if the report stated a 3 car garage on what is generally accepted as a 2.5-car garage by other market participants, then the report should contain a detailed explanation by the appraiser.
Inherent Flaws & Possible Errors In Measuring
With the lack of one nationally required or universally used measuring standard, it is not difficult to imagine that with tens of thousands of appraisers, of varying skill level and expertise, combined with the ambiguity of guidelines from some of the largest industry groups or even differing measurement requirements between some guidelines, that two appraisers can arrive at different square footages on the same property.
Even with a basic rectangular home measuring exactly 24’4” x 40’10” totaling 991.58 square feet (which would be entered as 992), reported values can vary simply due to rounding either to the nearest foot, half foot or quarter foot or from 984, 1,005, or 988 square feet respectively. The complexity of multiple corners, angled walls, and multiple story homes with varying wall lines can all contribute to differences between an appraisal measurement, an architectural blueprint, a tax assessor’s square footage amount or a comparable sale data record.
Additionally, devices used for measuring can create some possible errors. Examples of things that can cause inaccurate measurements of a side of a home can include:
· A fiberglass tape stretched too tight or left with slack in the line;
· A measuring wheel used on a sloped ground (instead of run along the home itself)
Effects on the Valuation Process
As this article demonstrates, there can be a range of possible reasons why the square footage of the home on the appraisal report can differ from other sources a home owner or buyer may have. It is important to remember also that the level of accuracy necessary is determined by the lender and appraiser. It is also imperative to know the level of accuracy is the square footage data of the comparable properties. If real estate agents report in available sales databases the homes square footage mostly based on tax assessor records and the tax assessor records use a rounding to the nearest foot, then measuring the home to the nearest inch may create an inaccurate adjustment.
To help account for small variances generally caused by rounding, the complexity of home design combined with the measuring device used as well as the level of accuracy of the comparable data, it is common for appraisers in the valuation process to adjust comparables that exceed a percentage or absolute difference. For example, it may make sense to not adjust the square footage between a 1,800 and 1,900 square foot homes. However, in larger homes making no adjustment for a difference between a home of 5,000 and 5,300 square feet may be appropriate. Other appraisers prefer to use a percentage different (such as ±5%, ±10% of the subject) rather than an absolute difference (±50 SF, ±100 SF, ±500 SF).
It is easy to see that how differing square footages can result for the same property, based upon many factors including but not limited to: the definition used, the accuracy of the measurement tool used, inclusion/exclusion of unheated/unfinished areas and dimension rounding.
Understanding the level of detail and definition required by the lender, the methodology & tools used by the appraiser as well as the relevant accuracy of square footage of the comparable data is crucial to determining the accuracy of the appraisal sketch and, therefore, the reliability of the reported square footage.
Until there is one national standard required for use by real estate agents, tax assessors, appraisers and others in the real estate industry, there will certainly continue to be some variations of a home’s square footage.
Federal National Mortgage Association (Fannie Mae)
Fannie Mae Selling Guide October 2013 (B4-1.4-14 Appraisal Report Review; Layout, Floor Plans and Gross Building and Living Areas)
Fannie Mae and Freddie Mac Uniform Appraisal Dataset (Specification Appendix D: Field-Specific Standardization Requirements Document Version 1.6)
National Association of Home Builders (NAHB) Research Center
The American National Standards Institute (ANSI) Z765-2003
The Employee Relocation Council (ERC)
Employee Relocation Council (ERC) guideline (#5)
The Department of Housing & Urban Development
FHA/HUD guideline (Handbook 4150.2)
The Appraisal Institute
The Dictionary of Real Estate Appraisal- Third Edition