Hey, why didn’t the appraiser include my basement in this appraisal?

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.

Appraising basement area in an appraisalThe 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.

Comments

  1. Kacejo Jordan says

    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.

  2. Sandra Wilisch says

    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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. 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.

Trackbacks

  1. […] Appraisal rules for evaluating basements via Appraiser Tom Horn. […]

  2. […] Appraisal Guidelines for Finished Basements – Tom Horn […]

  3. […] Did you even include the basement in the appraisal? This is a question I get quite a bit, especially after someone looks over the appraisal report and sees that I only showed 3 bedrooms when in fact there were 4, or 2 bathrooms when it should be 3. The important thing to remember is that appraisers must separate the basement area from the other above grade area. In a past post I explained in more detail the rules appraisers must follow for basement areas. […]

  4. […] This is a question I get quite a bit, especially after someone looks over the appraisal report and sees that I only showed 3 bedrooms when in fact there were 4, or 2 bathrooms when it should be 3. The important thing to remember is that appraisers must separate the basement area from the other above grade area. In a past post I explained in more detail the rules appraisers must follow for basement areas. […]

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