Why Can’t The Appraiser Include Basement In Price Per Square Foot?

Are Basements Included In Price Per Square Foot?

While I’ve discussed the topics of basements and price per square foot in previous blog posts I thought it might be helpful to revisit both of them again. This is a popular question I get from agents all the time so I’d like to hear your take on the subject by leaving a comment below.

Are Basements Included In Price Per Square Foot_

The bottom line is that the basement area, like any other feature of a home, contributes to the overall value of the property but how that is expressed in terms of price per square foot can be confusing. I hope that after reading this post you will have a better understanding of why appraisers handle this the way they do.

How Price Per Square Foot is Calculated

When discussing price per square foot in appraisals it’s helpful to know that it is calculated by dividing the sale price of the home by its gross living area. The gross living area is defined as the “above grade” heated and cooled square footage of the home.

Appraisers separate the above grade area from the below-grade or basement area because this is the protocol established by ANSI standards. Any level of a house that is below the ground is considered to be the basement and it is listed separately.

One concern I get from those that I explain this to is that we are not giving any value to the basement. This of course is not the case and I will explain why.

As I mentioned above, when the price per square foot of a home is calculated you start off with the sale price of the home. The sale price reflects the value of all features of the home, which includes all of the levels including the basement.

In addition to all of the levels of the home, it includes the land and site improvements as well. This is then divided by the gross living area of the home which, as I mentioned earlier, is the protocol established by ANSI standards.

Because the sale price is all-encompassing and reflects the value of all aspects of the property, the value of the land, site improvements, gross living area, and basement areas are reflected in the price per square foot.

I will say that if all of the square footage was lumped together like some people think it should be, the price per square foot would still include all aspects of the property, however, the price per square foot would be less due to the larger square foot number.

Consistency is Key 

No matter how you look at it, as long as all of the comparable properties are looked at the same way the value indication should still reflect a similar number. But again, the commonly accepted way to analyze the price per square foot is by using the above-grade gross living area.

Getting back to the original question of the post, we see that the basement is indeed included in the price per square foot. By following a set standard for calculating the price per square foot and applying that to all of the sales we can be assured that the value indicated is accurate and reflects all aspects of the property.

Question

Does this make sense? Do you have any additional questions regarding basements and price per square foot? If so, leave a comment below and as always thanks for reading.

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Comments

  1. Denise S Henning says

    I include the basement square footage on the GLA line. Our market does not see a difference. Nor does the assessor. I do disclose on the basement line the size and room count of the basement. FNMA guidelines are just that, guidelines. They are not commandments.

    • If that is the way the market sees it in your market then I would say that is the way you should address it. Do you use the ANSI standard and if so how do you handle the fact that you are lumping the areas together on the form when ANSI indicates that they should be separated?

  2. Faye Davis says

    What about the bottom floor to a Tri-level. My clients in Massachusetts was told the bottom of the Tri-level space wasn’t included even thought it was their living room. Does this very state to state?

    • When you say “was not included” do you mean it was not included in the gross living area? If any part of it is below the ground it should be included in the basement area. The ANSI standard for measuring and classifying square footage is recognized throughout the entire country so it does not change from state to state.

  3. Tom, has there ever been an instance where you did include the basement in the square footage?

    • Good question, Ryan. I did have one instance where I did have to do this. The reason I included it was because if I had not I do not think the indicated value would have accurately reflected the value of the subject. I believe you need to look at each property on a case by case basis, however, for the majority of properties, it would not be good to lump in all together.

  4. Im really glad you posted this. I did an appraisal on a house with a basement a few months back. I live in Florida, and I have only seen 2 houses with basements in my 21 years of appraising. It is not typical for the area here. The house I appraised had a really nice, finished basement, with a/c and had 2 bedrooms. It was done with permits and done to code. I think a typical buyer would see this as living space, but because “appraisal rules” require that I separate it, I did. But honestly a typical buyer would see it as additional living area. (A family with teenage kids? Hello??)
    I gave it a lesser value in my report, but it has been bothering me ever since.

    • Thanks for sharing, Dana. I understand about the lack of homes with basements. I worked in the Florida panhandle when I first started appraising. Basement homes were almost non-existent so I know what you went through.

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