I got a phone call out of the blue last week from a person who had recently had their home appraised for a refinance loan. The bank had given him a copy of the home appraisal, and after looking at it wondered why the appraiser had not included his fully finished basement. He wanted to get the opinion of another appraiser.
I’ve had this question asked numerous times over the years so I wanted to share my answer with you. When valuing a single family home, appraisers must segregate the various areas of the home. This is usually broken down into above grade gross living area (GLA) which includes any area above the ground such as the main level and all levels above that, whether that be a second and third floor or even half floors. Half floors usually occur when the upper level is less than the main level because of the slope of the roof.
Areas that have any portion that is below the ground is considered a basement. This basement area is separated into finished and unfinished area. The finished area of the basement is not included with the finished area of the main level GLA because they are valued at different amounts. In addition, with the implementation of the recent Uniform Appraisal Dataset (UAD), these areas are now shown differently than they once were. Take a look at a portion of the second page of the appraisal form where this is notated in the sales comparison grid.
The first line of the section titled “Basement & Finished Rooms Below Grade” shows a breakdown of the finished and unfinished area like this: 2997sf1588sfwo. Because the appraisal form has limited space to describe the property it is necessary to condense the description. What the above translates to is this: the 2997 means that the basement has 2,997 square feet (sf) of total area. The 1588 describes how much of the total area of 2997 is finished living area. The wo at the end means it is a walk out basement.
The second line of this section is described as follows: 1rr1br1.0ba1o. This translates as follows: 1rr means that the basement includes 1 recreation room (rr), 1br means it has 1 bedroom (br), 1.0ba means it has 1 bathroom (ba), and 1o means that it has one “other” type of room. So as you can see, even though the house has a finished basement and the basement area is not included with the main level GLA, it is shown in the basement area, and consideration is given to it.
Before you say “whoa, how cryptic can you get”, I agree. Unless you know exactly what to look for it is very difficult to understand how some of the information is described on the form. Appraisers have little control over how the Fannie Mae appraisal form is put together so please don’t blame us. If you have any questions about how to read an appraisal please give me a call, I would be glad to help you. Have you ever had a problem reading your appraisal? What part of the form did you have trouble with? Leave me a message below, I would like to hear from you.
If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.
Hey Tom – This article, along with the volumes of other stuff I’ve read here is super-helpful. We just received our appraisal back for our refi (in Birmingham) and I thought it seemed the appraiser failed to include the full bathroom in our finished basement. The finished basement is more like a studio apartment, it’s my oldest son’s bedroom. It includes a hardwood landing at the bottom of the stair case from the main level and the hardwoods continue down the hallway that has the full bathroom off of it and a standard closet next, which leads to the bedroom area. The bedroom area has a brick fire place on one wall (like you normally find in a living room), studded, painted sheetrock for 2 other walls. It’s a “normal” size bedroom area, perhaps larger than usual for our neighborhood. The ceiling is exposed but painted, throughout. There’s a rug in the bedroom space over the polished basement floor. The rest of the basement area is all polished but does not have rugs. The bedroom area is separated from a weight bench and workout area by a couch. All other typical bedroom furniture is also included. On the other side of the workout area and parallel to the couch is the garage door with 6 windows (just the one garage door, garages and especially using them as a place to park your car aren’t common in this neighborhood so just having the opening is nice). Next to the garage door is the door that leads out to the driveway and along past that is my workbench area then a small kitchen with a sink, window above the sink, stove/oven, microwave, refrigerator and some vintage cabinets and counters. This area is also contained by studded, painted sheetrock. The downstairs area is heated and cooled. The “Rooms Below Grade” reads 0rr0br0.0ba1o and “Basement & Finished” reads 960sf450sfwu. It’s definitely not included in the above grade portion, and I am under no belief that it should be. I don’t even think the bedroom space should count as such for the below grade formula for an appraisal, although I’m really not sure. He also did not include a picture of the bathroom in his report, or the kitchen area for that matter. The only enclosed areas in the basement are the bathroom, bedroom closet, a small closet in the middle abutting the bathroom and bedroom closet that contains the hot water heater, and a storage closet under the stairs. Am I correct to think we should have received more credit for this improvement? Oh and none of this was noted in the improvements section either. He also gave one of the comps an entire extra BR and BA (It’s a friends house down the street so I know it quite well). I’m frustrated but I don’t want to be uniformed, or a jerk.
Understanding an appraisal can be challenging, however, I would suggest that if you have any questions you can always call the appraiser to ask about the things you have mentioned. It would not be wise to discuss value but you can ask about how the basement rooms were determined and if there was any value given to that. It seems there is still a misconception that you are not allowed to speak to the appraiser, however, as long as there is no discussion of value then you should be okay.
Hi Tom,
I know this is old post but I’d love it if you could help me understand my appraiser’s report. I have a full bath in my basement and he marked (1rr0br1.0ba0a) which I read means he has missed the bathroom, even though the picture of it is in his report. Also I have 4 bedrooms above grade and one of his comps has 3 bedrooms. I see no adjustment for that difference–what line should that be on? He also makes negative adjustments to homes with smaller square footage in the basement, where I would think it would be the opposite. Also, do fences and fireplaces merit no adjustments?
The abbreviations for the basement areas that you show do include a bathroom. The part that shows 1.0ba is showing that there is 1 bath in the basement. It is difficult to comment on the adjustments or lack of for the various features because they may or may not add value in the market they are in. Sometimes when making adjustments appraisers might show the net adjustment. This may be the case for the bedroom adjustment. Since they are both on the same line the adjustment shown may be the net amount. Regarding the basement, again it could be a net adjustment for the differences in finished and unfinished area since they are both on the same line. Fences and fireplaces do contribute value but if you do not see where they made the adjustment you could always call them and ask. They should be able to explain what they did while not discussing value. Some appraisers are more willing to talk to homeowners than others. If you feel that the value is way off because of these issues you can always ask you lender for a reconsideration of value and then note all of the items you mentioned. I hope this helps.
Hey Tom, Nice article! It worries me even more to read though. So I just went under contract about two weeks ago. We made an offer on what we thought was 115$/SF assuming the basement wasn’t included, but it turns out the listing agent listed it the same as the rest of the home. I wanted out but my buyers agent assured me this was fairly normal for Texas. Though there aren’t a lot of basements to establish that. To rub salt in the wound the home inspector found the basement HVAC unit didn’t work and the sellers admitted it hadn’t worked in years and wasn’t needed (though they “forgot” that in the property disclosure statement). And to light the salt on fire they refused to fix it along with every other thing and insisted we buy the property “as-is”. Another thing they forgot to list on the MLS. Its hard not to feel like i’m getting railroaded here and my only hope now is the appraiser bails me out. As its really a 2500 SF home without the basement so we paid more liek 140 a SF which is top of the market for this neighborhood.
I feel like the listing agent needs to be reported for all the listing “errors”
Sorry to hear about the bad experience. I’m not an agent and don’t pretend to know about contracts, however, I have seen some contracts contingent on the outcome of a home inspection. If the home inspection finds problems you have the option of backing out of the contract. I’m sure the appraiser will do his/her best to find the most similar comps which should provide a reliable and realistic estimate of market value. Good luck and I hope things work out in your favor. Also, it might be possible to report the inaccuracies of the listing so things like this do not happen in the future.
We recently had an appraisal done for a refi on our home which includes a partial walkout basement which is mostly finished. The appraiser used 4 comps, none of which have basements because basements are rare in the Elmore/Autauga County area.
If I am correct in reading your blog, valuation for basements can be highly subjective, but I believe we have gotten the shaft on this appraisal. The cost/sq. ft. values of the four comps were: 142.18, 81.50, 110.26, and 135.79. I happen to know the realtor who sold both the highest and the lowest of these. She told me the 142.18 home was immaculate, but the 81.50 was an “as-is” sale by the owners who just wanted to get the house sold, and it was essentially the quality of a foreclosure house. Assuming a below grade value of 50% of the above grade rate, it appears ours appraised at 87.18. Our realtor friend was shocked by the appraisal.
Is there any way to challenge the comps or to request the “as-is” sale house be removed from the comps and a new valuation be determined?
Yes, you can request a reconsideration of value. I would contact your lender to see what their policy and procedure is. I would look over the report to make sure all of the information is correct and then if you have any additional sales submit those. You may want to verify if any condition adjustment was made on the low sale if it was inferior to your home. Price per square foot can be a tricky stat to use especially when the sales vary so much in square footage and features so you may not want to base your entire challenge on that. It can be difficult to value the basement if no other sales with basements are available. Is it possible your agent friend my help you locate some sales that you could provide to the appraiser? Just a thought.
My Maryland home was just appraised as I am refinancing. I am the 5th homeowner and purchased based on previous listings as 4 bedrooms. Now appraised… the appraisal is saying I only have 3 bedrooms, rec room and a den.
Note, this is a fully furnished basement that has an egress door leading to backyard. All the houses on my street have similar layout. I am confused to why the change.
I assume one of the bedrooms is in the basement? If this is the case the bedroom may just be shown in another area of the report. Basement rooms and above grade rooms are not included together.
How do they put a value on this space though? Looking at my last home appraisal they didn’t use a standard price per square ft for the below grade. Is it a combo of price per square ft and what the finished space consists of for rooms?
Valuing basement areas is tricky because you have a combination of varying amounts of square footage as well as the type of finished area. A basement that only consists of one large room with minimal finished (although still heated and cooled) will be worth less than a more elaborate basement with higher-end finishes and multiple rooms, including bathrooms, etc.
When I bought my house in 2011 it was listed and appraised (VA) as a 2 story home for over $165,000 but when I had it re appraised in 2018, it was classified as a ranch over basement and valued at $126,000. What can I do to fix this and get my value back? PS.. I am having another appraisal done in a week or so and need to get my value (and more) back.
Hello, Ejay, that is an interesting question. My only guess, and without even seeing your home, is that the first appraiser included the lowest level of your home in the total gross living area, whereas the second appraiser classified the lowest level as a basement. If ANY part of he lowest level is below the ground then ANSI says it has to be considered as a basement. Because the first appraisal lumped all the square footage together they could compare it to larger homes which sell for more money. The second appraiser had to use smaller homes which of course resulted in a lower value. Keep in mind just because the second appraisal was lower does not automatically make it wrong. It all depends on which appraiser was correct in the way they classified your square footage.
Thank you for this super informative post! Is there any appeal we can make for an above-ground space? We just got an appraisal for a construction loan on an addition to our house. The lower level is completely above ground–in fact, on piers–because of the slope of our site. It will be floor-to-ceiling windows on three sides. But it is not counted in the total SF (it is listed on the basement line with the code you show as wo). It is valued at about 75% of the upstairs space. Could I show the appraiser the Remodeling report that shows the value of basement reno in my area is 110% to get at least full value ascribed?
You could show it to them however it may not make a difference. The appraiser analyzes local data to determine the contributory value of various features and their study may not reflect what you have because all areas are different. Most of the time the remodeling report is more generalized while the appraiser’s analysis is more location-specific.
I bought a 1900 square foot home. It was listed for sale as 4 bedroom, 2 baths, and 1900 square feet. Two bedrooms and one bath are downstairs. I live on a lake so the property is sloped. You can walk outside from both bedrooms but portions are below ground. The appraisal done for my purchase did not separate it out as basement. It lists the 1900 as living space. I am refinancing and have now found out the property appraiser does not have one bedroom and bath on their records, meaning no permit was done for the downstairs and they can only show 1200 square feet in living space and half the basement finished and half unfinished because that is what the property appraiser shows. There were two real estate agents involved, I had an inspection done, and an appraisal. I am quite confused at this point. Thoughts?
I would find out from the county building department if it is possible for them to count the area as living space if you get it inspected by the city. This might cost some money for the inspections but at least the property appraiser would now be able to include it. Hopefully everything was done to code and will not have to be redone.
We applied for a VA refinanace loan and the appraiser gave us no credit for our totally finished below grade lower level, which took our home from 4/3.5 to a 1/1.5 and from 3000 sq ft to 1560 sq ft. Would we have any recourse since we pay a price to pay the cost to the taxs on 3000 sq ft house.
Are you absolutely sure they didn’t give you credit for the finished basement? Any below grade area such as a basement has to be listed separately on the form BUT you do get credit for it. Look at your sketch and on the grid page to see if it is listed.
Tom,
. When I originally bought my home it was a two bedroom, one bath A frame with a loft upstairs. 10 years ago I finished the basement adding a full bath and a bedroom and a gym. 5 years ago I took the roof off and added two bedrooms and a full bath upstairs. This winter I plan on updating and possibly expanding the kitchen. In order to expand I would have to take a bedroom away. This brings me to my question.
I am still using the original 3 bedroom leach field septic system. The house now has 4 bedrooms above grade and one below grade. Would I be able to sell a 4 bedroom house with a 3 bedroom septic system? If not then removing the bedroom would not hurt the value? We want a larger kitchen but not sure it’s worth the loss of a bedroom. I am in NH.
I hope you can help. Thank you
Raymond.
Raymond, I’m not sure if it works the same way in your area as in Alabama. If you obtained a building permit they would have probably checked that. When it comes to getting an appraisal they may ask you about your additions and when they were done and if they were permitted. If they were not the lender may have a problem with that. I would call the tax assessor or health department to see how that works.
First off thank you for all all of the information above. Now on to the question. We are in the final stages of a full basement finish. And were wondering how some of the upgrades and and features would affect a new appraisal value. Our home is a simple ranch with a walk out basement. The current tax appraised value of the home and 1ac. is 135000 for the 1100 sq ft upstairs. The basement is also 1100 sq ft with about 1000 sq ft finished. The basement has been finished with porcelain tile throughout and slate in a bathroom, ceilings have been finished with sheet rock to a height of 9ft, we also have a hydronic heating system that heats the entire basement slab. All total 5 rooms were added, laundry, bed with walk in closet, bath with walk in shower and jacuzzi tub, large living area and a play room. Is it reasonable to see an increase of value in the neighborhood of 30 to 50k? Also how do we point out special features to an appraiser as in the heated floors, high ceilings and finishes without seeming like we are trying to tell them how to do their job?
Thanks for the questions Ben. The amount of value that improvements add is all dependent on the area you are in and the markets perception of its worth. In order to make sure I don’t miss anything I ask homeowners to provide a written list of recent improvements and features and I don’t think the homeowner providing this would give the impression that you are trying to tell the appraiser how to do their job. One thing I would like to say is that if a homeowner is questioning whether proposed improvements will be worth doing they could get a “subject to appraisal” that will let them know what the home will be worth after improvements. This will also help them determine how much they should spend on the improvements so they don’t put in too much money.
This was a very informative post as have been the questions and answer. My question may be redundant and perhaps I’m just searching for an exception that doesn’t exist, but here goes…. I have a home built on a slope with a fully finished walk out basement. The basement has one CMU wall that is below grade and the remaining three walls are at grade with windows and doors. Does this still count as a basement because one out of three walls is below grade? If so, is there any case the basement would be calculated as Gross Living Area? And, how is the difference between the GLA value and the basement value determined. In my case, the basement is valued at 22.5% of the GLA value.
Sorry for the delay in getting back to you. As far as the classification of the level as a basement, any time any part of the level is below grade it must be called a basement. With that being said, it does not necessarily mean that the level would be worth less per square foot than the other above grade level. This is where the appraiser must determine the contributory value of the level. In some areas the basement contributes less value than other area.
Question: we are looking to purchase a home that is listed as a 3BR/2.5BA. Technically it’s a master on the main with a living room, fireplace, bathroom and 2 bedrooms all below grade. Each bedroom has a walkout door. Odd I know. We are going to have it appraised soon once we agree on a purchase price with realtor, but the realtor insists comps should be with other 3BR homes. It is on 5 acres and has a 3 car detached that is mostly a shell with exposed 2x4s. I think it will be hard to comp this specific house considering its unique floor plan and additional dwelling. How much credit would we get for a detached garage (no walls, no temp control)? Not sure how to get owner to see that we can’t pay them 120k more in purchase price vs what they paid.
Advice?
Thanks for the question Debra. Value is in the eye of the beholder and it some areas a detached garage may be worth more than it is elsewhere. The appraiser will need to take a look at what comps have sold and see if they can determine any additional value to the garage. In a rural setting, where storage space for mowers and equipment is important, the value may be more than it is in another area. The seller needs to keep in mind that cost does not always equal value, and they may not get 100% back in what it cost them to build.
We just had an appraisal and they did not count the finished basement. My question…in order to get to the main living area of the home you have to go through the basement area because when you walk through the front door (which is at basement level) you then go upstairs to go to main living area. Also the owner pays county taxes on all 2000 sqft of space, just not upstairs. Shouldn’t this then be counted?
I’m sure they counted it they just had to list it separately. You may want to contact the appraiser so they can explain how it was handled. Good luck.
We have a walk out basement. This is where our kitchen is located and it is the only kitchen. From talking to the last appraisal, not having a kitchen on main level hurts the value. We considered making some of the space on the main level a kitchen. I know it does not change the gross living area, but will it add value with a kitchen on main level?
If most of the homes in and around you have kitchens on the main level this would probably help your home’s value. What you should consider though is the cost to do so compared to the difference in value. In some homes (like lake homes that have walk out basements) a kitchen on the lower level is not uncommon. If the floor plan your home has is common in your area then maybe using homes with similar floor plans would give you a better indication of the value of your home since their sold price would reflect this. Hope this helps.
Thanks for your help. Unfortunately, most homes around me have kitchen on main floor and not the basement. I just didn’t know if it was worth putting money into changing one of the bedrooms to a kitchen.
Like many renovations and improvements it may cost more to remodel than you may get out of it since it will be turning the floor plan into what the market says it should be already. With that being said you may want to check with a local appraiser to find out if this is true for your market.
Carmen, my husband and I are having a difficult time refinancing our home as our kitchen is also in the lower level. Our upstairs hosts all the bedrooms, a bathroom and a living room with a staircase leading downstairs into a huge kitchen that opens up into the backyard and a patio. We were told that if an appraiser will not take the job, will cannot move forward with the process. The most frustrating part is that we were able to purchase the home 5 years ago, and the house has been previously owned by 4 other families in the past. We cannot afford to revamp our home, nor would we want to…we like the setup as it is extremely welcoming and enjoyable during the winter months being able to sit by the fire and look out to the back yard, while enjoying cooking in the kitchen. I thought I’d share my story as I have not encountered many people with a similar situation, and wanted to say your not alone in your frustrations.
Hello,
I have a full finished above ground walk out basement. I’m having trouble understanding why this area is not considered “Living Space.” This is where my family spends most of their time when at home. It is heated, has full size windows, a full bathroom with shower. I live in New York State and for having this basement finished I have to pay additional property taxes. It needed to have an inspection, etc.
This is a common question Victoria. If ANY portion of the basement is below ground then it is classified as “below grade” and treated as such. You do get credit for it, and it is considered living space,however it is at a different rate. We have to segregate the area on the appraisal report, however since the comps are classified the same way we are comparing apples to apples. Hope this helps to understand it better.
I know this was posted long ago, but I’ve been unable to find an answer to this question. If a basement is below grade, and is completely finished with electrical, plumbing, and air conditioning, BUT has no heat source, how is it considered?
Hey Jennifer, this is a great question that I’ve been asked before. The area would be treated as a normal finished basement with contributory value being given based on what the local market will pay for it, however there will also be a downward adjustment for it NOT having heat. This adjustment may be the actual cost of adding the heat source but not always, as cost does not always equal value. It would be based on the reactions of buyers and sellers in the local market.
Thanks! This is for appraisal purposes of course…but do you have any idea of the property tax assessor feels the same way?
I’m not sure how they would look at it, that is if they even know about it. They may not know that it does not have heat.