Welcome to the November edition of our blog series, The Loan Officer’s Guide to Appraisals. If you’ve been following our blog, you know that all year, I’ve been writing with the purpose of assisting loan officers to better understand the appraisal process. In this month’s blog post, we’ll dive into the topic of ANSI guidelines for measuring. We’ll look at why standards matter, we’ll look at a few ANSI basics, and then tie it all back to what it all means for you – the loan officer.
Before we get too far, let me offer an disclaimer: All information regarding ANSI guidelines is taken from the ANSI Z765-2013 document which can be found [here].
Why having a standard matters
We’ll get to the basics about ANSI, but first let’s consider the question “Why does it even matter?”
Look at almost any business, and you’ll 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 sometimes even an industry at large. They set minimum guidelines which should be followed every time. In the absence of standards, there is often chaos. Everyone doing what they feel is right, and that sometimes can depend on how much sleep they got last night, or how little they enjoyed lunch! It’s no different when it comes to how homes are measured. Standards exist so that appraisers can – for the most part – all be on the same page with how they measure homes. And, ANSI is the most widely used standard; however, as you’ll see in the next section, it’s not a national standard, and it’s certainly not used by all appraisers. Many have never even heard of ANSI.
Who must follow ANSI standards?
Many states have implemented ANSI standards, and if it were up to me, I’d be all for a nation-wide adoption of ANSI standards and mandatory training for appraisers. Appraisers should know whether their state requires the adoption of ANSI if they want to be kept in compliance. But I would argue that even if they don’t live in a state that mandates ANSI standards, they should still be followed. Or, at the very least, some standard should be followed. Unfortunately, this all creates problems. Let’s look at an example.
In our business, Riverfront Appraisals, we serve clients in two states: Kentucky and Indiana. Kentucky follows ANSI guidelines, but Indiana does not. So in Indiana, we could have two appraisers, a tax assessor, and a Realtor measure a house and come up with four drastically different living area calculations One appraiser measures the upper level sloping ceilings down to four feet because that’s the height you could fit a bed into (I’ve had this conversation with an appraiser before). The Realtor may count below grade square footage in the gross living area. Another appraiser follows ANSI standards, even though the state doesn’t require it and the assessor has to guess at what’s upstairs because they don’t go into the home. See what’s happening? Chaos.
And unfortunately, unless Fannie Mae, Freddie Mac, FHA, and every other lender and investor and government entity adopts a single standard that must be followed nation-wide by all market participants, we will continue having these problems.
Until then, my one word of advice is that in areas where standards do not exist, we need to follow the market. If purchasers don’t care about ceiling height, then that shouldn’t be an issue. If every home in a particular market counts partially finished three-season rooms as living area, then they need to be counted in the gross living area. Appraisers are, afterall, developing an opinion of market value.
The rest of this post will be helpful to those of you in an area where appraisers follow ANSI guidelines. If that’s not you, continue reading! You may learn that your area follows these guidelines as well – they just don’t call it ANSI standards!
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. We’ll look at each of these next.
We’ll first consider examples of finish materials, and what spaces are included in finished square footage.We’ll first consider examples of finish materials, and what spaces are included in finished square footage. Click To Tweet
ANSI Basics: Finished Rooms
ANSI states that
Wall and ceiling finishes include but are not limited to painted gypsum wall board, wallpaper-covered plaster board, 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.
Let’s think about your client’s basement. 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 (although that may soon change).
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
Let’s talk about ceilings. 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, I want to draw your attention to two main things. These will be helpful to explain to your borrower clients, especially if they are purchasing or refinancing an older home:
- If you have 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.
- At least one-half of all rooms must have a ceiling height of at least seven feet.
ANSI Basics: Basements
Basements are another very confusing aspect of a home’s living area. Across the country, sellers and Realtors advertise square footage differently, and sometimes, you need a Ph.D. just to understand what belongs where! But since this is a blog post from an appraiser’s perspective, I’ll let you know how appraisers calculate square footage in basements, and how we all must report basement square footage. I guarantee when your borrower gets their report back, if they have a basement, some will say “but the appraiser didn’t even include my basement!” Read on. In just a few minutes, you’ll have everything you need to explain the basement portion of an appraisal to your borrower!
One of the most common questions we get when appraising a home with a basement is, “you don’t count the basement in the square footage, right?” My answer is always “yes and no” ANSI guidelines state that if any portion of a lower level is below grade, then that entire level is considered basement. So if you are at grade level on three sides, but one side is two feet underground, then the entire lower level is basement. Now let’s say the main level has 1,500 square feet and it’s 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 1,500 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 1,500 square feet listed as the basement square footage, and 100% listed as the finish.
So, no – basements aren’t 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, the appraiser could count both levels as above grade, and there would be no basement.
Bringing it all home: Why it matters
If you’re still reading (thanks!), you’re probably thinking you just obtained a bunch of useless information that as a loan officer, you’ll never use. Not true!
In a typical refinance, if there are any questions about how an appraiser measured the home, why they didn’t count certain areas as square footage, or how they handled the basement, for instance – the loan officer is usually the first to field those questions. Having an understanding of how an appraiser measures a home will be extremely helpful when speaking with your borrower – both before and after the appraisal is completed.
Not only that, but the way an appraiser measures a home affects value, and as a loan officer, being able to be 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?
What if the borrowers are planning a remodel that includes a bonus room or a sunroom? You have some tools now to help them determine if these areas can be counted in the living area of the home.
So the next borrower you help, grab their appraisal. Don’t just look at the line on the bottom of page two. Really study it. Look at the sketch. Especially if it’s 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 if they follow a measuring standard. Look for patterns, standards, and inconsistencies. I promise you’ll be much better equipped the next time square footage questions come your way!
And in the meantime, if you have any questions about ANSI or other measuring methods, or how all of this affects value, drop us a line at firstname.lastname@example.org. We’re always happy to help.
Committed to helping you understand your home’s market value,
Ryan Bays, SRA, AI-RRS