The Realtor’s Guide to Appraisals Part 8: Understanding ANSI for Realtors

I can’t think of a more polarizing topic – one that has completely shaken up the appraisal industry since the first part of 2022 – than ANSI.  In April, 2022, Fannie Mae announced that any home purchased by them will need to be measured using ANSI standards.  This has caused more than a little chaos and confusion, so this chapter will help clear some of that up for you.

The American National Standards Institute (ANSI) oversees standards and conformity assessment activities in the United States.  And they oversee a lot of standards.  The standard real estate professionals are quickly getting familiar with are guidelines for measuring a home, and it’s super important to you as a Realtor to know how to measure a home under these standards, and also how an appraiser will be measuring a home – especially if no one in your market has used ANSI before.

Why does it even matter?

We will get to the basics about ANSI, but first consider the question “Why does having a standard for measuring a home matter?

Look at almost any business, and you will find standards.  Standard operating procedures, standards for quality, customer service, or any number of things.  Standards usually apply to everyone within a given organization, or industry at large.  They set minimum guidelines which should be followed every time, because in the absence of standards, there is often chaos.  Everyone doing what they feel is right, or how they’ve been doing it for the last 40 years!  

After the announcement from Fannie Mae, you could see how many different measurement methods were out there, being used by appraisers.  Most were just what the supervisor taught, and they varied widely.  Rounding to the nearest ½ foot, to the nearest foot, counting the basement in the GLA, not counting the basement, counting everything in the upper level under five feet, counting everything at the height of ‘my shoulders’ or ‘if I can stand up all the way in the upper level, I count it as square footage’.  See?  Chaos.

Standards not only exist – they are needed – so that appraisers and Realtors and other real estate participants can (for the most part) all be on the same page with how they measure homes. 

Who must follow ANSI standards?

Here’s where it gets a little complicated.  Although Fannie Mae now requires homes to be measured using ANSI standards, not every home loan is sold to Fannie Mae.  Some are financed through the VA, or FHA, or kept in-house.  Other times a home could be measured and appraised just for simple market value estimation purposes.  None of these require ANSI standards to be met (other than Fannie Mae), and the real estate community at large has no ANSI standards.  

Many states have implemented ANSI standards across the board, but not all states. Appraisers are responsible for knowing their state’s standards, and if you’re in a state that requires appraisers to follow ANSI, then as a Realtor – you should as well. 

And unfortunately, unless Freddie Mac, FHA, VA, and every other lender and investor and government entity adopts a single standard that must be followed nationwide by all market participants, these problems will continue. Until then, Realtors and appraisers should follow the market. We are, after all, working with market value. 

So let’s look at some basics.  Here are some of the hottest topics in ANSI, and some that will affect how you measure, advertise, and price your next listing.

ANSI Standards:  The Basics

In general, in order to be included in a home’s square footage, all areas must be finished, must be accessible to other finished areas of the home, and specific ceiling height requirements must be met.  Let’s look at these in detail. 

ANSI Basics:  Finished Rooms

ANSI states that

Wall and ceiling finishes include but are not limited to painted gypsum wall board, wallpaper-covered plasterboard, and wood paneling. Floor finishes include but are not limited to carpeting, vinyl sheeting, hardwood flooring, and concrete floors with decorative finishes but do not include bare or painted concrete.

Decorative finishes are long-lasting or permanent components of the slab produced by such methods as chemical staining, integral coloration of the concrete, scoring, or stamping that modify the texture or appearance of the slab.

Think about a basement in your newest listing.  Do they have bare or painted concrete block walls?  Maybe bare concrete floors?  Then that portion of the basement cannot count towards the basement finish (more on that later).  Or perhaps they have concrete floors in the main portions of the home (yes, we’ve seen it many times!).  If the concrete is not treated with the methods mentioned above, then those areas with bare concrete cannot be included in the home’s square footage calculation.

Regarding garages and other areas, ANSI states that

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.

We also read that 

Porches, balconies, decks, and similar areas that are not enclosed or not suitable for year-round occupancy cannot be included in the Statement of Finished Square Footage.

So that second-story bay window that bumps out beyond the outside wall?  Not square footage.  The garage?  Nope.  Three-story chimney?  Can’t count it.  Covered porches and patios, or three-season rooms do not qualify either.

ANSI Basics:  Access

Have you ever gone into a home that had a bonus room above the garage?  How did you access that room?  Did you go through the living room and up over the garage?  Or did you have to walk into the unfinished garage, and then up the stairs to the bonus room?  Here’s what ANSI says about those rooms:

Finished areas above garages are included in the finished square footage that is at the same level in the main body of the house, but only if they are connected to the house by continuous finished areas such as hallways or staircases.

So if you go outside to the detached garage and up the stairs to a finished, heated & cooled area, it cannot be considered in the square footage.  Or if the garage is attached to the home, but you have to leave the finished area of the home, go into the unfinished garage and then go up the stairs to the finished room, that area also cannot be counted.

ANSI Basics:  Ceiling Height Requirements

This is perhaps the most misunderstood and even disregarded aspect of measuring a home’s square footage.  To be counted in the square footage, if we’re following ANSI guidelines, here’s what must be followed:

For a room to be included in the square footage calculation, the floor located under sloping ceilings must have a clearance of at least 5 feet (1.52 meters); further, at least one-half of the square footage in the room must have ceilings of at least 7 feet (2.13 meters) in height. For example, a one-and-one-half-story, 28 by 42 foot Cape Cod- style house has a first level with a ceiling height of 8 feet. On the second level, the ceiling has a maximum height of 9 feet but a minimum height of 4 feet at the walls as the ceiling slopes to match the pitch of the roof. All areas are finished. While the first level has 1,176 above-grade finished square feet, only that portion of the second level meeting the ceiling height requirements described above is included in the square footage calculation.

So to recap these ANSI standards in English. These will be helpful to explain to your sellers and buyers, especially if they are selling or buying an older home:

1.  If there is an upper level with sloping ceilings, only the area where the side (knee) walls come up to at least five feet can count in the living area.
2. At least one-half of all rooms must have a ceiling height of at least seven feet.

ANSI Basics:  Basements

Basements can be another very confusing aspect of a home’s living area.  Historically the way basements have been advertised has varied widely and sometimes, a Ph.D. is required just to understand what belongs where!  But since an appraiser is writing this then you are getting the appraiser’s perspective. 

This question is frequently asked, “Will the basement count in the square footage?” The answer is always “Yes” and “No.”  ANSI guidelines state:

If any portion of a lower level is below grade, then that entire level is considered basement.  

So if the home is at grade level on three sides, but the fourth side is two feet underground, then the entire lower level is basement.  Now let’s say the main level has 2,000 square feet and it is over a full, 100% finished basement.  On page one of the appraisal report, it specifically asks for gross living area above grade.  So that will be listed as 2,000 square feet.  Above that, in the Improvements section, and again on the ‘sales grid’ portion of the report, the basement is listed separately.  We list the total basement square footage, and also the portion of that square footage which is finished.  So in this scenario, you could see 2,000 square feet listed as the basement square footage, and 100% listed as the finish.  See the diagram below for more information:

So, no – basements are not considered in the living area of the home, but they are considered in the basement square footage of the home and should be valued based on the market.  One rare exception is if you have a split-level home where the entire lower level is at grade.  In this case, you could count both levels as above grade, and there would be no basement.

Bringing it all home:  Why it matters to Realtors

The way an appraiser measures a home affects value, and as a Realtor, being able to read an appraisal and see how certain areas affect value can really help your clients.  If a home’s upper level cannot be counted in the gross living area due to low ceilings, how did the appraiser treat that area?  Did they mention it in their report?  Did it command any value?  If so, how much?  If not, why not?

And, understanding ANSI guidelines is super helpful to you when you go to list your next home.  If you measure your listings yourself, now you know how to measure similar to how the appraiser will likely measure.  No more surprises on square footage after the appraisal is completed!

I know Realtors don’t often see appraisals, but the next one you get your hands on, take a look at it and really study it.  Look at the sketch – especially in an older home with low ceilings, or perhaps a basement.  Get to know how appraisers in your market measure.  Call them up and ask them questions.  And if ANSI measurement standards are too difficult right now for you to understand, hire an appraiser to measure your next listing while you’re there so you can learn!  I promise you’ll be much better equipped the next time a square footage question comes your way!

In closing, here is a disclaimer:  All information regarding ANSI guidelines is taken from the ANSI Z765-2021 document which can be found at https://www.homeinnovation.com/about/bookstore

Committed to helping you understand your home’s market value,

Ryan Bays, SRA, AI-RRS