To quote Gerald Ford, "Our long national nightmare is over." It wasn't just getting a good rate that made us choose you. We know you are reliable and consistent and answer questions almost immediately. You were the only orderly part of a very chaotic process. Our thanks to you for your help and patience and your work in seeing this through.

Paul & Erin C.-Springfield, VA

Below Grade Square Footage Gets Erased!

June 30th, 2010

If someone told you that the first level of your home was an unfinished basement, and did not count towards the livable square footage of your home, would you be upset? It would be as if someone arbitrarily erased part of your home, and made it smaller than it really was! This is a really important story for more people than you might think.

Many traditional homes sit on flat lots and are uniformly situated. They may have an unfinished or partially finished basement, then a 1st level with kitchen, living room and dining room, and then a 2nd level with bedrooms. But what about the surprisingly large number of homes that sit on odd lots and don't have a basement. These homes may find that part or all of the first level is below grade. Fannie Mae, banks and underwriters will tell you that if a home's first level is below grade at all, that level cannot count towards the "gross living area", and as a result greatly reduces the value of the home since it will be counted as a basement instead of living space. Here is what one bank representative had to say about this:

"With regards to areas below grade, it is common for the appraiser to not include areas in Gross Living Area (GLA) as per Fannie Mae Guidelines XI 405.05 and ANSI Standards Z765. Which are consistent in definition by stating: The above grade finished square footage of a house is the sum of finished areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade. Any level that is partially below grade makes the entire area ineligible for being determined in GLA."

A duplex with a traditional fully finished living unit below grade with the main house above grade, with a Certificate of Occupancy for both units, is an exception to this situation. But, I had a client who had a three level contemporary home in a neighborhood with rolling hills and a lake. As a result, the first floor of the home, which contained one bedroom, one bathroom, and a recreation room, sits partially below grade at the back of the house. Her home is almost 3,000 square feet of total living space in the real world. But in the banking world, based on the Fannie Mae definition of what creates GLA, the appraiser counted my client's house as closer to 2,000 square feet with a basement! Hence, instead of the $900,000 appraisal we were confident in getting in order to refinance the home, we got an appraisal of $780,000 and the refinance had to be canceled.

Imagine telling someone who raises a child in that 1st floor bedroom, and entertains and lives in the recreation room, that the square footage has now been erased from the ability to be counted as Gross Living Area! It seems absurd. If the market will bear a price of $900,000, why wouldn't it be able to be appraised that way.

And the more frustrating part of this story is that when my client bought the home in the real estate boom of the early 2000's, Fannie Mae and the banking industry interpreted their own rules much more loosely, so this issue did not come up when my client bought the home. So now the client may have trouble selling the home, because potential buyers will have trouble getting the proper appraisal to support the contract price.

There are more homes than you may think that fit this scenario. I have seen homes in urban settings where the 1st level is entirely below grade to some degree, and I have seen many homes in areas that are not flat where part of the 1st floor is below grade. Take a look around you the next time you are driving around a neighborhood, and see how many homes have a 1st floor that is not a basement, that are partially or completely below grade.

As an aside, below is the oddball potential solution my client and I considered at the time:

"I just had an odd idea pop into my head on the issue of the first level being partially below grade, which Fannie Mae uses as an excuse to dismiss all of the first level and not use it as Gross Living Area. I am getting ready to go through a similar scenario on another appraisal right now, and was trying to come up with something for what I know will be a problem for those clients. And it just hit me, and it may sound crazy to you but I wanted to run it by you nonetheless, how about digging out around the first level, re-landscaping, and magically make the whole first level above grade!?

I ran it by my other clients who will have this issue, and they are considering this and are going to get estimates to dig it out, make it pretty with new landscaping, and then we can use the whole first level as Gross Living Area, and get the appraisal that we deserve. Obviously we do not want to do something that would ruin the way the house sits and looks against the landscape and the yard, and we also would not want to do something that would be expensive, but just a thought I wanted to run by you."

Imagine having to dig out part of your first level, rip up shrubs, plant new landscaping, painting, and paying for all of it, just to be able to sell or refinance!

I think there should be a variance on this rule, with some logic introduced into each situation. Obviously if a house has "some" of the yard pushed up against it on 1/3rd of the house on the backside, and the 1st level has plenty of light, windows and gets used a living area, an exception should be made!

Brian Martucci is a loan officer for 1st Mariner Mortgage, a division of 1st Mariner Bank. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Mortgage or 1st Mariner Bank.

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51 Responses to “Below Grade Square Footage Gets Erased!”

  1. Great summary of a situation that I didn't know existed until I got a call from a client complaining about their appraisal. They had just spent a boat load of money refinishing a first floor in a raised ranch (front side was slightly below grade, back is a walk-out) only to find that they could not cash out the new equity that they created. A quick Google search found this piece which answered my questions.

    Thanks for the post.

  2. Margaret Vogel says:

    I totally agree. My husband and I just had our home devalued by 45,000 because our game room is partially below grade level. This is the first time this has ever happened to us in an apprasial and it is wrong in my opinion. We use this room all the time along with the hallway and bathroom that is accross from it but not included in the apprasial.
    It is not fair. I have a basement on my forth level, I don't have another basement on my third level. It is a game room and has a 1/2 bath accross the hall, that is used all the time, yet it was omitted from our apprasial.
    I have contacted my Senator just to see if anything can be done about this discrepancy. When a home is considered one of the largest investments you can make, it is shocking to think entire rooms and area can be omitted on apprasials because they are a little below grade even if they are used as living space. Frankly, it is unscrupulous and unfair.

  3. brianm says:

    I agree completely Margie. I hope you get somewhere with your senator, since Fannie Mae and Freddie Mac are now in federal receivership, they are the ones running the circus. It would be interesting to hear what they say, so if you do get feedback post it here. Good luck!

  4. Dr. P says:

    I live in MD, and a similar thing happened to me. I have a raised ranch built into a hill. My kitchen is in the fully finished lower level, which is below grade on the front but has a wall of windows with a gorgeous view on the back. My appraiser told me my newly renovated kitchen doesn't exist in the eyes of Fannie Mae because it's on a partially below grade level. He told the bank I need to install a kitchen in my upstairs level for my loan to get approved!! Does anyone have any similar experiences??

  5. brianm says:

    I am hearing about this more and more. This has been a policy of Fannie Mae for a very long time, the problem is that it was loosely enforced, if at all, for a long time. Now that the banks are paying attention to underwriting again after the real estate boom, they are strictly enforcing every single guideline, including this one. And of course appraisers are fearful of retribution, so they are going by the book as well. It is a problem that is going to be with us for while I am afraid…

  6. Ken says:

    Here's an idea, don't buy a raised ranch with any lower level portion below grade and you won't have an issue down the road when you believe that the "basement" should be considered to be gross living area. "write your senator", wow!

  7. […] I have recently had a re-occurrence of an appraisal issue that keeps repeating itself. I am not sure if its part of the tightening of underwriting standards, or if it's logical. But I'd like to explain the recent issue so everyone can be aware of it. This piggybacks off of a blog that I wrote about in the past, related to a similar situation, which you can reference here. […]

  8. Chris says:

    Fannie Mae guidelines do not force appraisers to "dismiss" all areas that are partially below-grade and give these areas less value than they would actually contribute to the property; the guidelines simply stipulate that such areas should not be included in the "above-grade" gross living area. It is instead calculated as a separate area that can still be valued exactly as the fully above-grade area is, especially if the area is a nicely finished walkout area with windows & doors. Just because it is calculated as a separate area does not mean that it cannot be given its full value (i.e. valued exactly as the rest of the gross living area that is fully above-grade). If an appraiser fails to factor in the full market value of such an area, the problem is with the appraiser rather than the fact that the two areas are calculated separately in the appraisal.

  9. brianm says:

    Hello Chris, thank you for the comments. The part about below grade square footage being erased was tongue in cheek, I was not being literal. But the fact is that below grade square footage, whether it is finished or not, does not count in the “gross living area” computation. That is a rule straight from Fannie Mae Freddie Mac, and the banking industry. It has nothing to do with the appraiser, they are just following rules. It is not that below grade square footage gets no value, it does get valued. But the problem is that it does not get valued anywhere near the same level of valuation as above grade square footage. And it does not count in the "Gross Living Area", with emphasis on "living". I assume the logic is that mankind was meant to live above ground.

    And there are many sellers and Realtors that would like to value below grade square footage on par with above grade square footage. And it seems both the marketplace in general, and the banking industry in specific, does not allow this. I cannot imagine making a case for a house that is entirely below grade, like a cave, no matter how many windows and light it had on some sides of it, and trying to argue that it had the same value as the house with a similar amount of square footage all above grade, it just does not make sense. So a house that has a certain amount of square footage below grade, must be valued to a lesser degree than a house that has all of the square footage above grade.

    Another blog about this can be found here: It goes into this in a little different level of detail. Thanks again for the reply.

  10. Sharon Bannon says:

    I would like to know if the "odd ball" solution of "digging out" was done and if it improved the appraisal value significantly. I have an artificially created hill that was added to make a carport and second level entry into my Mother's home. I have inheirited the home and I am refinancing at this time. Is it worth digging away the dirt??

  11. brianm says:

    Hello Sharon. The outdoor solution did work. It allowed us to count the lower-level as finished square footage, and all of it counted in the gross living area. That meant that we could use larger comparables from the neighborhood, and it helped us get a higher value. If digging away the dirt is not a massive project on your home, I do think it would be a good idea to do so. Otherwise you cannot count the square footage from the lower-level that has the ground partially surrounding it. It will allow you to use comparables with a larger square footage, and therefore a higher value. Good luck.

  12. Joe H. says:


    I have run into this problem on my recent refi app.

    My split level house is built on a concrete pad, as are the one-story houses on either side of me. The current appraisal for my house shows that the entire lower level of my house is below grade, even though careful measurement would show that, at the highest elevation outside of my house, the distance from windows to ground level is almost exactly the same as the distance from windows to floor inside. Our appraisal came in $50K less than our assessment.

    My question is–if these rules were applied equally to my neighbors, their houses would be entirely below grade, and they would have NO GLA!!! (And, if everyone used the same rules, NO mortgages!)

    Go figger.

  13. John says:

    This is the exact same thing that just happened to me.

    Feel taken advantage of as when buying the property it is "counted" by the listing agent and then when I want to refi, those sq footage are not "counted".

    Never knew this strange "rule" existed until 5 minutes ago when I got the depressing phone call.

    Just wanted to validate this topic legitimacy.

  14. Jim says:


    Regarding your comment about living in a cave above, in today's world of rising energy prices, a partial solution to energy efficiency is to place one wall (usually the north wall) into a hill to protect it from the wind and cold. The other three walls could be 100% above the level of the ground, and in fact could consist of mostly glass, especially the south and west walls.

    By the definition the energy efficient house just mentioned would not have any area above grade and thus would not be able to get a mortgage. it is time to rethink this bureaucratic rule.

    We have an embankment ranch. The north wall of the bottom level is below grade. The space is a family room with a fireplace in the north east corner, and 18' of glass including an 8' slider in 40' of wall space. The floor is 3' or more above ground level. Welcome to my basement…..

  15. brianm says:

    That is an excellent point. By definition your house almost does not exist! And we know our government wants more energy efficient housing, so what will they say as far as a mortgage is concerned to those who choose to achieve energy efficiency by taking the route you suggest. You cannot promote such energy efficiency on the one hand (which our government does) and then dis-incent it by having your rule makers (Fannie Mae & Freddie Mac) enforce underwriting guidelines that don't encourage the very behavior they are trying to promote! So if they have their way, we'll all be living in proper Colonials, with 2 stories above grade, and an unfinished basement. And we'll keep things nice and orderly and not live in different types of housing stock so the rule makers at Fannie Mae and Freddie Mac don't have to be bothered??

  16. Jim C says:


    Never been on your blog before, I have been a appraiser fo 28 years. I am doing an assignment right now and if you google it yours is the first site that comes up beside the actual Selling Guide. As appraisers keep it apples to apples everyone should be on the same page. I wrote this comment about 5 mins ago.

    Partially below grade comment
    The subject is a style of home that has an area 300 square feet that is partially below grade. As per Fannie Mae guidelines, specifically XI 405.05 and ANSI Standards Z765. As the county assessors office consistently adds these areas into the gross living area in the subject and all properties similar to the subject, there is a significant variance when comparing the GLA as identified within this report and GLA as reported in county records. The appraiser has not incorporated this GLA as to conform to Fannie Mae Guide Lines. The appraiser has also removed the square footage of similar areas of the comparables. It is further noted that this is an extremely homogeneous area with many homes the have identical GLA when built.

    There is a large difference between level skills out there. A great many of the experienced appraisers left the buisness after HVCC. They all had money and retired. Appraisal buisness is a mentor buisness and always has been and I do not think the goverment thaght it through. I ran a shop for 14 years and peaked at 250 appraisals a week. I hired appraisers with minimal experienced and then did what everyone else did. I showedd them how to fill out theform quickly and effeciently. They knew how to appraiser but thet were really form fillers. Now you have to be able to read market areas, know obsorbition rates etc. none of them do. If you say they should go to school you are right. But thats closing the barnyard doors after all the horses were already gone.

  17. Bill_B says:

    There's a major point that's being missed here. The purpose of the appraisal is to estimate a value that a buyer would pay for the property, a market value. A rule that "erases" the value of below grade space moves the appraised value further away from the market value. Furthermore, the rule is substituted for the professional discretion of the appraiser.

  18. Mike S says:

    This same thing just happened to me on a refinance so I did some research into the a Fannie Mae code (see below). It basically reads that the sq footage is below grade, but it is up to the appraiser to evaluate the value. In my case above ground was $100 per sq ft and below was $50. So I complained and explained that even below grade the value is the same as the other levels and should be $100 per sq ft. I have contacted the BBB, the DLLR and the third party appraisal company. I expect they will agree and re-asses the value. How could they not?

    I, 405.05: Gross Living Area (11/01/05)

    Rooms that are not included in the above‐grade room count may add substantially to the value of a property—particularly when the quality of the “finish” is high. For that reason, the appraiser should report the basement or other partially below‐grade areas separately and make appropriate adjustments for them on the “basement and finished areas below‐grade” line in the “sales comparison analysis” grid.

  19. brianm says:

    It boils down to the fact that this will vary market by market. And it also depends upon the level of finish as to whether below grade square footage may merit a higher dollar value than most below grade finished square footage. So the bottom line is that there are a lot of variables, the marketplace is a variable, the level of finish is a variable, and also the appraiser that happens to be coming out to your house is a variable. Good luck!

  20. skiptin KY says:

    Well, I just found out about this the hard way, trying to refinance. Bought home in 99, Wanted a refi to do some upgrading. Went to bank that has my mortgage. Unable to get the refinance due to " Unacceptable security parcel". Why? In 1999 I had 1543 sf GLA. The calculations rules then change. In 2012, I have 98 sf GLA and 1445 sf of below grade space. I asked the underwriter, If I had 1543 sf of GLA in 2012, would i get the loan? Absolutely they said. Why do I not qualify for it then? They said " because according to the appraiser report, you have an unacceptable security parcel because you only have 98 SQ ft GLA". This is a serious national problem with no fix in sight.

  21. missy says:

    It gets better. We found this out in 2010 while trying to refinance. Our home would only be compared to other 3 bedroom 2 1/2 baths even though our walk out finished basement has a bedroom and full bath.It is finished to the same new level of consistency as the rest of the house. So we contested it and nothing was done so we in turn took it to the tax office and tried to appeal our 4 bedroom 3 1/2 bath taxes-which are high in our area anyway. Guess what-no go. Its insane. We are getting taxed on a 4 bed 3 1/2 bth living space but cant get the value of it. Something needs to change!

  22. brianm says:

    Wow, that is astonishing. Although I guess I should not be that astonished that local government wants to squeeze somebody for every tax dollar they can get. Too bad that these different entities do not sync up and follow the same rules. I can see how it is frustrating though. You have mortgage lenders and underwriting rules that will not allow you to take advantage of and get the proper valuation out of the extra bedroom and bathroom; but then you have a taxing local tax entity that will value it because they want to squeeze as many tax dollars out of you as possible. It is not difficult to see how that seems unfair!

  23. SharonN says:

    I am in the process of refinancing my 3 (all above ground) level townhome. A previous appraiser counted the first level in the gross living space, (I assume) because the first level contains the rec room front door, garage door and walk out to the back yard all on the ground level.

    However, when I switched lenders, the second appraiser came out and counted all 800 sq ft as below grade. He counted the fireplace in that room as an extra upgrade, but is not considering the extra 1/2 bath or the rec room as living space. None of this level is below the ground in anyway, shape or form.

    This has been an extremely frustrating and long process.

  24. brianm says:

    Hello Sharon. I believe your first appraiser was correct in counting the first floor in the gross living area (GLA), because its all above grade, and you do actually have living area there (the rec room and bathroom). So I would ask your second lender what their process is for an "appraisal challenge" and challenge the 2nd appraiser's non-use of the 1st floor living area, based on Fannie Mae and ANSI (American National Standards Institute) definition of GLA as anything above grade, that is used as living space. A rec room and a bathroom are living space! Good luck!

  25. Cindy says:

    Hello anyone,
    I am a Raised Ranch home owner. We bought this home in 2005. We are considering moving to another state and recently had our 4 bdrm home with 2 bath appraised. The appraiser came back to us along with the realtor saying our home is not a 4 bdrm, it is a 1 bdrm with finished basement a 3 car garage on alomost 2 acres of land. The realtor and the apprasier can not find any comp's in our area even close to our home…ever! What frustrates us is the town just came through last year and assessed us at 4bdrm home,2 bath,3 car garage. What do we do?

  26. brianm says:

    That is really frustrating, agreed. I think the first thing you do is go to the tax assessor's office and explain that both FNMA as well as ANSI do not concur with their tax assessment, and that they need to use market standards in assessing it, and lower your tax assessment. Then, when you put it on the market to sell, you need to hope for an all cash buyer where the lending rules won't matter, or look for someone with a big down payment (like 30% or 40%, or more) so that if the place under appraises, the required loan-to-value of their mortgage program (likely 80%) will still be met, and your buyer's loan would still be approved.

  27. Tito says:


    I am curious who did the digging out for you? did you have to consult an architect first, did you use a landscape architect or something for the initial plan, or did you just get a backhoe and start digging? :)

    I have a similar situation on one edge of the house, probably 1-2 ft which as you know invalidates the entire area.

  28. brianm says:

    The client simply hired a landscaping contractor who showed up with a small bobcat, and a couple of laborers, and they started to dig out, regrade, and then plant some new shrubs. It was actually a very simple process. Good luck!

  29. davep says:

    I built a house in 1984 in which all 3 bedrooms are "below grade". No indication from the architect or builder that there would be any problem. But they easily meet every other requirement for access, egress, lighting, etc. It is energy efficient – always cool in the summer and easier to heat in the winter. Only one wall is below grade. I'm now trying to sell it and according to the guidelines my house has NO bedrooms. This doesn't just cut into the value of the house, it makes it virtually unsellable! My real estate agent valued the house over $200K. Now what do I do?

  30. brianm says:

    Hello Dave, that may indeed be a difficult sale if you have a buyer someday that requires financing. According to the Fannie Mae rules that will be a tough loan to make. But I can see it being made if the buyer has at least a 20% down payment, larger would be better, and if the appraiser can find comparable properties, then I think you would be okay. But if they try to compare your property to other homes in the area that have all bedrooms above grade, that is going to be a problem. It is all about finding comparable properties for the appraisal. If there are other homes in the neighborhood like yours, and if some of them happen to be transacting around the time you want to sell yours, I think you will be okay.

  31. Karen says:

    I have a house built on a hill. The realtor is now calling the lower level a basement. A third of the lower level is below ground, but we built retaining walls and have windows on three sides of the other two thirds of this level. Since we have retaining walls, and it is clear that part of the lower level is above ground, why is the realtor calling this a basement?

  32. brianm says:

    Hello Karen, I am afraid the Fannie Mae Guidelines XI 405.05 and ANSI Standards Z765 say if "any" portion of the lower level is below grade, it cannot be counted in the GLA (Gross Living Area). Those rules state: "The above grade finished square footage of a house is the sum of finished areas on levels that are entirely above grade. The below-grade finished square footage of a house is the sum of finished areas on levels that are wholly or partly below grade. Any level that is partially below grade makes the entire area ineligible for being determined in GLA." You should get credited for a finished basement, not just an unfinished basement, but if there are bedrooms and bathrooms on the level that is partially below grade, Fannie Mae nor an appraiser will be able to count those in the GLA I am afraid.

  33. Edward Higgins says:

    I had no idea this was a factor in house appraisals! That being said I would have NEVER bought this house! Thanks incompetent government!
    I just found out that our appraisal for a re-fi came back with our house listed as a 2 bedroom with a GLA of 1000' sq ft. What? So my house has decreased in value? Yes! Absolutely! I am shocked at this bizarre government regulation that has no exception for uniquely built houses many of which are split levels. My contemporary house was built in 1980 and has always been a four level layout with living space on every level. It is four bedrooms and two baths. I now know that 1300 sq ft is considered a basement! When I refinanced in 2009 my house was at 2300 sq. ft. of GLA. Who is this rule working in favor of? My neighbors house is 150 sq ft larger than mine but the GLA is all above ground. His house appraises 50k higher than mine for this fact alone! I am sick! What am I supposed to do? The rules need to change!

  34. brianm says:

    I am not sure this is government's fault. After all, Fannie Mae and Freddie Mac started as private/quasi-private institutions and created their own rules, which included these appraisal rules about below grade living area. Having said that, there does seem to have been an uneven application of these rules over the decades, and I have seen different interpretations of it by different appraisers and different lenders at various times. As I said, I was completely unaware of this rule when I started in the mortgage business in 1986, but when it started to be applied more rigidly when the mortgage crash came, I certainly became aware. I am afraid there is nothing you can do at this point, but hope to find someone that can pay cash for your property, that values it the same way you do, or maybe there is a buyer that needs a loan, but can get a loan from a non-Fannie Mae, non-Freddie Mac lender (these are called portfolio lenders). And, it may also be that you may trip across an era where all these guidelines change, or at least the application of the guidelines loosens up.

  35. Aletha says:

    Value can still be assigned to the below grade area, it is just done so in a different grid on the sales comparable approach. It is always best to compare apples to apples when possible. So if recent sales of similar homes that also have finished below grade areas have sold, then they should indicate what the market would pay for them. Typically the market pays more for above grade living area, and less for areas that are below grade. There is a different feeling in most cases, usually less sunlight and most of the time (but not always) slightly less quality of construction. If the home is one or two stories designed to be above ground, usually it has a different feeling about it and sometimes a more usable or functional floor plan as well, and the market pays more for that. The problems that we as appraisers find, is that the assessors will include the below grade areas and the agents will follow suit. Then we are left trying to figure out what the comparable sales above ground living area size is and how much of it is finished basement. Many times it may be difficult to find similar recent sales with below ground living areas as well, which also can complicate things.

  36. brianm says:

    Great feedback Aletha, thanks! And you are correct, I was being more tongue in cheek when I said below grade square footage "gets erased", but there is indeed some value assigned to below grade square footage. The problem comes when realtors, buyers and/or tax assessors try and assign it the exact same value as above grade square footage. Thanks for reading.

  37. Heather says:

    as an appraiser who works in an area where most homes are built into hillsides I can say this- In the past Fannie Mae guidelines have been open to interpretation with little to no actual guidance. As they are standardizing things more and more, these types of issues come to light. Guidelines state that you have to break out the areas, however it is up to the appraiser to determine the value of the below grade area by studying how the market reacts to it. Typically one level homes cost more to build and therefore will cost more per sf. In addition, areas with elderly populations etc. may pay more for single level homes. However if that type of construction is typical of the market, then the Comparables will have like living areas as well. Fannie Mae does not tell appraisers how much to value these areas, if the market suggests the typical buyer will pay the same for below grade as above grade living area than the price per square foot adjustment would be the same, however now that the market is more standardized and it is easier to analyze these types of living area, it may come to light that these area may be valued at none or just a portion of the above grade living. It is determined by the market not by the appraiser and may fluctuate depending on the area as well as the current market conditions. In a time when buyers were not as picky because people were snatching up homes just to get one, they may have paid any price for any type of living area, now that people can be more choosey buyer preference may have changed the values of these areas. It is in constant fluctuation and should be analyzed every time.

  38. brianm says:

    This is really excellent feedback Heather, thanks for commenting. And you are right, I believe the guidelines can be interpreted. But with lenders running scared of "buybacks" and with Fannie Mae and Freddie Mac having lost so much money, everyone is underwriting in very rigid fashion. But I do think there are lenders and underwriters that will interpret the rules with logic, as you have, and take a more market specific approach, and see what the local market dictates. I have seen problems where in a lenient environment where no one even knew what a buyback was, this issue was not raised, so realtor and the marketplace would market a 3 BR home with a bedroom below grade in the basement, and comp it to other 4 BR's, some of which had all 4 BR's above grade, and no one knew any different, and the sale was made as a 4 BR. And now that far more lenders and underwriters have to be more rigid and wary of buybacks, that home is far more likely to be a 3 BR with a finished basement now. And while the finished basement will get some value, it will be hard to comp it against a 4 BR home where all bedroom's are above grade. It's a case by case issue, and I am sure as the market stabilizes, we may stop hearing about this issue, and logic will be the norm again.

  39. Allan says:

    Does anyone have any updated or recent guideline changes? This just happened to us. Our estimated tax value was $418,000 without our basement finished. We had a 9 room, 2 1/2 bath, 2995 SF home. We invested over $30,000 to finish our basement, which is only 1/4 below grade with a full walk out. We added 2 bedrooms (both with full windows outside) a full bathroom, a wet bar and family room with hard wood flooring adding 1495 SF to our home. When we had it appraised last week, the appraiser counted all as a basement and didn't adjust the GLA. The outcome, our house is worth $421,000 according to that appraiser, not even getting the money we invested, when we were expecting to come in somewhere north of $480,000. While we have a great home now, this really sucks. What the appraiser didn't take into consideration is in two of the compatibles, which also has walk out basements there are rooms counted in the GLA but because the appraiser is using how the real estate agents listed the homes or how our city assessed them we are getting hurt. I can't wait to get my new tax assessment which I sure will count at least some of our 1st floor in GLS. If we get a tax assessment on $450,000 I am going to go nuts…come on banks, real estate agents and appraisers…get your acts together..

  40. brianm says:

    The guidelines are the same I am afraid. The appraiser may be using comps where the realtor's counted the finished basements in the GLA, but that does not mean that is how the appraiser counted it. The appraiser may have adjusted for that in the adjustments, and is likely treating all the comps equally, and is likely applying the below grade square footage rule across the board to all comps. I'd have to see the appraiser to comment in more detail. But the bottom line is that the market will deliver you the price the home deserves when its time to sell. Just be careful when looking at offers when you sell your home someday. Offers where they have a small down payment are going to rely completely on the appraisal, and that could be an issue. Offers with a large down payment, or all cash offers, means the issue may just go away partially or fully.

  41. Lenny says:

    We recently built a home. I am a home builder and therefore we built it ourselves. We are in Oklahoma, in which case there are not many basements but they are definitely out there. I built several myself in our city. After the third try, we finally received an appraisal that took into account the full value of the fully finished, walk out basement. (After all, that is were most of our bedrooms are, two bathrooms, family room, laundry room, etc.) We were getting set for closing from our construction loan to our permanent mortgage and the appraisal was denied by the bank's underwriter (per Fannie Mae guidelines). Even though we finally received a good appraisal, the appraiser could not find enough basement comps in our area, and therefore had to use non-basement homes and apply adjustments. These adjustments were greater than the underwriter will allow (per Fannie Mae), and therefore we are in limbo. We finally have a good appraisal, but the basement comps just don't exist in close enough proximity to us or as a recent enough sale (for those in close proximity). We are therefore in limbo. We have a construction loan we are paying on, but can't get into a permanent mortgage because of the underwriting guidelines. This whole system is a mess. It should not be this difficult to build a basement home in tornado alley. If GLA included the area "below grade", this would not be an issue as using an "above grade" comparable would not result in significant adjustments and cause the appraisal to be denied.

  42. brianm says:

    I agree with you Lenny, and I am sorry you are going through this. You would think that this would be more common in tornado alley, you are correct. And you would think as a result it would be really easy to find the proper comparables to comp your home with and more easily get the loan through. Why there are not similar comps in an area with heavy tornado exposure is confounding. Of course the rules are so rigid, they will not yield unless you can come up with the right comparable sales for the appraisal. You may want to look into getting a portfolio loan (non-Fannie Mae, non-Freddie Mac), or even a commercial loan, where they have different guidelines and a looser approach to valuing a home of this type. Of course the terms may not be as attractive, but at this point to be safe, you may have no choice but to look for this as a plan B.

  43. EConway says:

    we converted our garage into a family room, with finished hardwoods, heat, etc. It has several windows of average size and a walk out door, that walks right into our driveway. When the appraiser came he is value this as below grade. Because when he entered my house at the front door he walked up several stairs to do so. So now he considered my converted garage as below grade and did not inclue 576 sq ft in my appraisal… at all. Is this correct?

  44. brianm says:

    If your garage is entirely above ground, and its now finished space, it should be counted, especially if its attached to the home. Is your garage attached or detached from the home? If they did not count it I would ask your lender to ask the appraiser specifically why they did not count it.

  45. WmByrd says:

    We are rebutting an appraisal in Alabama received two days ago concerning a refi.

    The home is situated on the land so we can view the surrounding estate which is downhill from the home building. The home sites on 5+ acres of land with a over a 1/4 mile private paved drive. Like beach houses, mountain houses, lake houses, the front of the home is the view. The rear of the home(s) are just that, the back or rear entrances.

    Our home is three floor levels with slab concrete foundation. The first floor is the front door to the home, has ground level entry and is fully heated and cooled, as is the entire home. There is front door parking as well. There is a 2nd floor back door rear entry to the home with a carport. The second floor consists has a large atrium within that vaults through to the third floor of the home.

    The Tax Assessor states the home to be 3,269 sq. ft.

    The Insurance Company state the home to be 3,200 sq. ft.

    This Appraiser states the home to be 2,100 sq. ft., and states the First Floor to be a partial basement with a crawl space. However, the First Floor is the foundation of the entire home and is all concrete. There is no crawl space anywhere. Says the frame is 1.5 levels. The home is 3 levels. There is a retaining wall at the rear of the first east foundation line, but the majority of this first floor front door entry to the home is out of the ground has windows and is the Front Door Entry to the home. There are two bedrooms, I full bath, a large reception area and a laundry room and mechanical room on the first floor.

    Again the second floor of the home has a rear door back entrance but is not the front door entry to the home and is secondary.

    I have read the Fannie Mae and Freddie Mac Selling Guides and understand to a point what is being stated by all who have written to your site.

    Seems to me that there should be value given to basements that have walkouts if built out/ finished as the remainder of the homes fully above ground space sq. footage. Maybe not 100% of the value but certainly value added. I do not see where the Appraiser should just erase the space as if it does not exist with no value.

    I have read the Appraisal several times and the appraiser on the Sales Comparison Grid does state the in the basement /finished rooms below grade section, the sq. footage, rooms and baths and on each comp. However, the value I see no value for this space just minor adjustments on the comps. A negative 1,075 on one comp, a positive 6,500.00 and 1,500 on the second comp and a positive 1,165 on the third comp. These are not any real value. Impossible. He is giving non realistic value to the sq. ft. called he is stating to be a partial basement. Furthermore, this is the front door to our home and is not a basement.

    There are many home with full basements, partial basements and walkouts and more in the area as this is the foothills of the Appalachian Mountains. Comps are not an non existent issue here.

    Furthermore, the comps uses are not similar settings and are in older subdivisions, smaller lots and clustered homes. Ours is an estate lot, very private, 1/4 mile + paved drive heavily wooded and a view lot as well.

    I see no provision for view lots or maybe just overlooked. Any knowledge here from you?

    Also, I see nothing addressing the front door entry of the home being on the first level of the home in our instance. I do see where appraisers are taught in 101 and up that the Front Door delineates where the GLA Begins.

    I am going to bring up other comps I found with 1/3 of a mile from our home three homes under construction at over $440,000.00 construction loans and with land purchases at over $100,000.00 each. The appraiser fails to mention a word about these comps, and states there is little comps out there.

    The Appraiser used 2 comps that were listings as well. One a 1/3 of a mile away at $339,000.00 on 2.26 acres and the other at 2 miles away at 239,000 on 1.31 acres.

    I found a for sale comp within 1 mile at $300,000.00 on less than a 1/4 acre.

    Please advise after your review. I welcome any other help.

    Thank you.

    Wm Byrd

  46. WmByrd says:

    I forgot, the appraiser state the home to be valued at 244,000.00

    We paid $195,000.00 in 1996 and made many improvements. Some as late as 6 months ago.

    The appraiser state no improvements in 15 years.


  47. brianm says:

    I definitely think you should challenge the appraisal. Is the first floor below grade at all? Even a 6" below grade?

    The fact that the Tax Assessor states the home to be 3,269 sq. ft. and the the Insurance Company state the home to be 3,200 sq. ft. is not surprising, they simply have a different definition of how to count square footage.

    The appraiser stating the home to be 2,100 sq. ft. may be accurate, at least according to Fannie Mae rules, but they should be giving you credit for a finished basement, or maybe calling it a finished lower level. It may not count in the Gross Living Area, but it should count for something, especially of the local marketplace has other homes like it.

    If there are 2 bedrooms on the first floor, and its below grade at all, that could be part of the problem. If you have what you believe to be a 5BR/3BA house, but 2 BR and 1 BA is below grade, then the way the lending and appraising industry work, they are going to consider the house a 3BR/2BA with a finished basement. Again, if they are not giving you credit for a finished basement, then that would be an error.

    You said you see what are minor adjustments on the comps for the lower level, maybe a finished basement may not be worth much in your market, hence the small adjustments. If comps are not an non existent issue in your area, it should be easy to prove that the "basement" (which in your case is really a lower level) is worth more than the small adjustments mentioned.

    The fact that yours is an estate lot, and very private, on a 1/4 mile + paved drive in a heavily wooded area may not be a plus. If the comps are all in subdivisions, and there are no recent sales that are private estate lots like yours, that could be part of the problem. Maybe there is not readily available and plentiful lots that are situated like yours.

    As far as no provision for view lots, there should be 'some' adjustment for view, but it may not be as much as you think. But it should be something.

    You mentioned three homes under construction at over $440,000, but I am not sure they'd be considered comparable.

    The appraiser using 2 comps that were listings was probably just an addition of extra data, they were probably comps #4 and #5, not his main comps. Sometimes an appraiser will use extra comps their listings to help support the three main comps that are settled sales.

    I think there is something to what you say, and it is good to call the appraiser to task and ask him to explain his valuations and adjustments. But I also think there is a lot of detail at play here and that its hard to understand from the layperson's viewpoint, and you have to remember that you are applying for a loan that they are trying to fit within a Fannie Mae/Freddie Mac box. And Fannie Mae/Freddie Mac have guidelines that are based on the lowest common denominator, and more vanilla property types. You should report back here on this page when the appraisal challenge is completed, and share the results of the appraisal challenge. I'm sure it will clarify things, but I do hope it is successful for you to some degree.

  48. brianm says:

    That is one more thing to hold the appraiser accountable for in the appraisal challenge. You can identify improvements that were made and can show receipts and invoices, so it's impossible for the appraiser to say that no improvements have been made in the last 15 years. That may be worth something.

  49. Brie says:

    First of all thank you for this thread. I am trying to re-finance in washington state and they are saying 600 sq. ft. of my tri-level house (bedroom, living room and bathroom) are below grade. Our house is on a hill and the area outside of these living space IS excavated out above grade and landscaped and they are still calling it below grade WTF! We have a 2,250 sq. ft. house and they are comping it with single story 1,200 sq. ft. houses, frustrated is an understatement.

  50. brianm says:

    Sorry to hear about this Brie. This story seems to be getting more attention. Hopefully some of the folks who write the rules will apply some more logic soon :-) Good luck!

  51. Brie says:

    Moral of the story is, excavating May not do the trick :-/

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