The Missing Standard
What can we do to establish a national measurement standard for appraisers?
Every week I talk to appraisers in different parts of the country and the conversations are almost always the same. Square footage errors are a problem everywhere, some places worse than others. Every appraiser seems to understand the problem and many of them complain about the real estate agents, home-owners, and even underwriters who challenge them about their square footage totals. They rely on the “Official Record” they believe is listed by the local tax department. Who teaches them this stuff? How is it possible the general public doesn’t know how important a home’s size is to the total value. They all believe in price-per-square-foot, but for some reason think the square footage in that calculation is not important.
Yesterday I talked to an appraiser who told me about his discussion with a homeowner who was upset because his home was over 200 sqft smaller than when they bought it, he even showed the appraiser the MLS listing. The appraiser pulled up the tax records and sure enough, the square footage in MLS was the same number in tax records. And yes, it was wrong over 200 sqft.
It seems like this topic is pretty frequently discussed so how can more people not understand the problem? Even in North Carolina, where the Real Estate Commission requires agents to have a sketch in every listing file, and to never rely on tax records, most weeks I can find new listings with the square footage totals that matches the tax records. It must be they just don’t care enough to change the method they have always used. For agents it is an absolute problem, but they always blame appraisers. If appraisers can’t agree on one standard, why the heck should we?
What will it take for the Appraisal Foundation to make a measurement standard mandatory? It’s almost funny to hear the same comment over and over again – “we don’t care which standard we follow or whether we count stairs as square footage on one floor or on two floors, we just want one rule so we can all do it the same way.” It really does make our profession look bad.
We all know the problem is real and it cheats home-owners every day. So, what can we do to establish a national measurement standard for appraisers? Who has the answer? It’s time…
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This problem is rooted in assessors and building offices at the local levels, relying on supplied specs. It comes back to the typical rules, report in a way which is consistent to the market. If one unit is shorted or counts stairs, it’s likely another is too. Disclose, disclaim, report consistently.
Good luck with that, who will set that standard? I bet there will still be variances in complicated designed homes, especially large ones even with that one standard
Not sure what is so damn difficult about measuring a property. What a waste if we are using our time towards this!
There is a great disconnect between realtors and appraisers about square footage. Realtors often misquote the square footage because they don’t understand what is truly living area. OR they do know but chose to ignore. Quoting tax records – which are often incorrect- is one thing but misquoting because of ignorance is another. I’ve measured homes before at the realtors request because they think it’s bigger than tax records only because the seller says so. Once I measure and it’s smaller than tax records, they use tax record information anyway. So clearly they use what they want to attract the most buyers and worry about the fallout – if any – later. It would be nice if they would correct the MLS to what the appraisal comes back at on the property. Then we might have better data for the comps. A standard would be nice…we could start with ANSI which is already recognized by many but not mandatory.
Ansi has standards for home measurements that work well for our industry.
I have confirmed by a brief stint as a staff appraiser and from a story that was told to me by my sales broker, that many appraisers, especially staff, are under great pressure to get the appraisal done quickly. They are also penalized if they don’t maintain a certain quota of completed appraisals per week. When the total, livable sq.ft. does not jive with the tax records, it requires additional time and effort to resolve the discrepancy. Many appraisers are changing their measurements to concur with tax records. A staff Appraiser came out to conduct an appraisal on my broker’s listing. My broker and the homeowner – an architect were aware of the permitted enclosed porch and room extensions the homeowner had done. They had not been recorded in public records yet. My broker says the appraiser did a wrap-around with a tape measure for the first floor and was practically running while he did it. The appraiser left the house unannounced and the discussion of the additions or permits were never discussed. Sure enough, when the appraisal came in, it reflected the exact total sq.ft. that was in the public records – the incorrect sq.ft.
And, staff positions are for the birds. I recall clearbox appraisers bragging about how quickly they were in and out.
When I’m like stressing with a gutter, I just grab the siding on the other side, wrap over the gutter and then subtract 6″ or whatever, works like a charm. I don’t play with lasers, poke your eye out or something.
If there was one thing the CU system should share with appraisers, it is the previous sketch at a minimum. I’m always remarking, somewhere there is a sketch for your property, but they won’t share it with me.
The whole thing is just too complicated to correct with policy. Assessors, building departments, plans and specs, unruly builders, down to the guy who swings the hammer and stacks the bricks, lots of room for variance. I seek to match assessment records and will adjust slightly to suit. Only if there is notable difference like alteration is it justifiable to enter a varied number, or something similar like improper recording from the city/county level.
Sharing sketches WOULD be helpful. Not to save me time measuring, but to identify discrepancies in the field in order to double check them and confirm why they appear to exist.
Enclosed porches are not calculated as GLA.
This was permitted as “livable” sq.ft.” along with room extensions. the premise of the story.
In all my years as an appraiser and as a real estate broker measuring a house has never really been an issue. Nor has the GLA, square footage, etc., of homes as shown in the MLS. It is always shown as an estimate. Public records are also shown as an estimate.
Appraisers in 2018 have much bigger problems. AMC’s. Fees offered that are less than they were 10, 15, 20 years ago. Ridiculous revision requests. Upload/Portal/Maintenance Fees. Did I mention AMC’s?
As always, your results may vary.
I like the really basic sketch programs. I’m still using original Medina.
Under no circumstances do I want people to mistake me for an architect.
I concur with Randal R. Davis. American National Standards Institute (ANSI) has standards for home measurement that work well.
I like when AMC reviews come back and ask the question “why the appraisers sq ft differs from the tax assessment” Who the hell knows?
My standard reply to AMC’s: appraiser utilized the Unicorn and Fairy Dust Method for estimating the GLA. Tax Assessors typically apply the Snail Horn method of estimating GLA. While the various methods used to estimate GLA often vary there is typically no deviation between the methods when we reconcile values.
There is a neighborhood in upper Denver where back in the 50’s & 60’s, builders routinely skipped and shorted a few bricks on standard square ranches so they could on volume get a free house up now and then from the saved bricks.
Over time many records are corrected but most are not. Those whom ‘corrected the record’ merely get slightly less value out of the exact same house.
My take on lasers is why bother for that exacting measurement when all else being equal, general equivalency is more important than exact measurement.
I also concur that ANSI is a perfectly acceptable standard for calculating GLA. It is the one I was taught to use as a trainee, and I have never felt the need to diverge from it.
The only stated requirement that I occasionally may diverge from is the one which states that no portion of the finished area can have a ceiling height of less than 5 feet. My market contains many old homes with finished third floors that have sloped ceilings. I typically measure from knee wall to knee wall even when they are not 5 feet high. My reasoning for this is that often there is a dresser or the foot of a bed under this area and therefore it serves as living space. I also feel that the market sees this as functional space.
The real issue relating to what an appraiser measures, versus what is reflected in pubic record files, is how does an appraiser support their findings as the truth. Locally, permits are available to view online for give or take 10 to 15 years, via phone at the city for 10 to 15 years further back, and anything further requires a trip to the building department (a few hours), where there’s never a guarantee of all the records being on file/kept (30, 50, or 100 years in the past). When a home gets sold a dozen times in its life, and dozens of agents and owners have been involved over the years and decades, how in a few hours or days, is the appraiser to put the GLA puzzle together when other parties have failed for years?
They either trust us, or they don’t.
Seek the truth.
Personally, I hope that we never adopt a National Standard nor have assessors’ offices on the same page.
This one item is the main reason no computer program can pop out an accurate OMV. Why? Because the data they utilize for this is so inaccurate, it cannot be relied on. GLA is among the most important items which has a market reaction across the nation. If an accurate account is made in public records using a National Standard, computer programs have half the battle won.
So I say, let it be and rely on the appraiser to accurately measure the subject.
Even with the best standards in place, I find that its not the older homes on average that have varying data (MLS versus public records), but rather new and newer construction homes where developers offer options at the time of build (garage, bedroom, bathroom, GLA, etc.). Locally, I’ve seen it 100+ times where instead of the default standard 3 car tandem garage, owners check a few boxes and add the downstairs bedroom, that in turn changes the 2.1 bathrooms to 3 bathrooms. In turn, the garage count is off, the GLA is wrong, the bed and bath count is in error, etc. Even with a national set of standards, errors (human, etc.), will occur where a boots on the ground appraiser will be needed.
Seek the truth.
Yes, that’s the new deal. Plans are submitted to get things rolling but are often not revised after changes are made. When dealing with newer construction homes we may also need to contact building offices since they also do not always update the assessors. What’s in assessment may only be the initial record. New construction is certainly much more challenging and subjective than it used to be. They’re all fully customized these days, with all the minor details. I miss the silver gold platinum and uniform housing approaches. What’s with this class system, mansions next to townhomes in same neighborhoods.
Hamp, you are right in all you said.
Unfortunately, you (we) have all been undermined by FNMA AND increasingly ‘local custom.’ Please read Horiike V. Coldwell Banker (& Chris Cortanza as agent [sp]). It’s a multi million dollar case that has been around for about 10 years; went to the California State Appellate Court and then was sent back down to superior court.
In a nutshell; City of Malibu AND the builders plans specified GLA as approx. 10,000+ sf (closer to 11k sf) with an additional 4-5k sf “lower level” below grade on three sides (you and I would call it basement) but finished to a quality similar to the rest of the luxury estate. TOUGH house to measure. Appraisers were about 500 sf apart.
Agent listed the property as 15,000 gla. Asking Price per sf appeared much lower to the buyer in the $800 or $900’s per sf vs the prevailing $1,000-$1,200 sf overall for similar property as a result of gla being over stated in mls.
Foreign non English proficient Buyer sued alleging property was misrepresented and he was taken advantage of. (there were some other relatively minor side issues as well).
Almost all appraisers (other than the one testifying for the respondents) would concur that GLA should NOT have included basement area. Especially when the city’s own code excludes it as well. The court disagreed.
Case is on appeal yet again. My point is that as long as FNMA and local jurisdictions re interpret whatever standards appraisers adopt, then consistency in reporting gla becomes next to impossible to achieve.
Additionally, over stating the market importance of sf to the exclusion of other factors like traffic flow tends to make 50 SF much more significant legally than it should be. That’s about one stairwell or ceiling opening. You and I would likely consider it as not an overly important size variance (as opposed to other sources).
Otoh 200 sf becomes much more significant – that’s potentially a moderately large room.
In your state (& presumably others), it’s possible agents are simply afraid of litigation that could arise from a minor misstatement of size or dimensions.
When or if those new standards are developed there has to be a ‘safe harbor’ of some type so that neither agents nor appraisers are sued for minor variance (say 5%+-?). PLEASE keep TAF out of it – they can’t even assure USPAP is uniformly interpreted or enforced. There also MUST be universal concurrence as to what constitutes living area (ANSI apparently is not enough).
Maybe it’s time for new expressions: Primary Living Area (PLA) and Other Livable Areas (OLA), and recognition that they MAY or MAY NOT have the same value in a given market area.
Great article Hamp, and more important than many realize.
Great lesson for all of us in the Real Estate world “The written word prevails” I include the basis for my measurements on the drawing and the report.
It’s already being looked at, and an ‘international’ standard now exists… see: http://www.ipmsc.org
The International Property Measurement Standards initiative got off the ground at a meeting in Washington DC in 2013. It’s supported by most of the major standard-setting organisations throughout the world, not to mention the major real estate service providers and clients.
Hi Jimbob-Great information.
I note that they are for Office Buildings only (per their advertising)
In looking at their sponsors I also see duplication of all those also purported to have signed on to IVSC. Absent from the above members is The Appraisal Foundation-though AI is listed. Im assuming this is an extension of the rift between AI and TAF.
The mere fact that there are two international organizations making the same or very similar claims is a concern. On the other hand IVSC concerns itself with all aspects of standards for international finance and accounting/valuation as opposed to simply measuring buildings, so maybe the seemingly apparent conflict isn’t that big a deal.
Your post is related to office buildings. The bulk of posts above referred to residential 1-4 unit dwellings I believe. Again, good info for all and worth spending some time on.
The joys of working in CA and the confusion by many parties relating to basements/GLA. In working on a rush FHA assignment where public records and all past listings identify the property as a 4/2 with 1, 464 sf, in reality the property is a 1/1 with 732 sf. The below grade level is fully or partially covered by earth on 3 sides (Basement), yet the ignorance of others (9 past listings / 20 years), show no separation of the space (GLA/Basement). Considering the current value is below the purchase price, and below what the current owners paid for the property in 2015 (Flipped), I can’t wait for the phone calls and e-mails.
Seek the truth.
Why can’t a basement be included in GLA? Short article by REALTOR.com. Seems to me it’s more about local custom than a clear and fast single rule.
https://www.realtor.com/advice/buy/should-a-nicely-finished-basement-count-in-the-pricesquare-footage-of-a-home/
Its below grade. Its considered finished basement area.
In CA, I encounter (subject) basements about 5 times a year, and often deal with agents who have never sold a home with a basement in their entire career. Its a loaded subject, as in if the agents, owners, & buyers don’t know, thus they are not well advised, or informed (in part definition of market value), how can they determine an asking price or make an offer.
Seek the truth.
Scott, short answer is that it CAN, but the bigger question is should it be?
My personal opinion is “No. It should not be.” Not unless it is universally adopted by NAR and ALL state Boards; and in turn by TAF and FNMA as well as HUD and VA all simultaneously. We cannot have ‘mixed’ standards with some adhering to ANSI; AMS or other more arbitrary ‘standards’ expressed by FNMA and other GSEs.
Right or wrong, buyers DO make offers based on perceived prices per sf of living area. Listing prices are automatically converted to asking prices per sf of GLA. (Some say GBA which just confuses things more). When courts do find in favor of a party over a GLA dispute, they typically calculate an overall price of ‘value’ per sf. Again, right or wrong – that’s the reality.
A 1,500 sf sfr listed for $500,000 is $333.34 per sf. ASKING price per sf. IF it had a 1,000 sf basement that were also included AS CALCULATED LIVING AREA it would be only $200 sf.
The same total area house (2,500 sf) with a 1,250 sf living area and a 1,250 basement called living area at $500k is $400 per sf (living area) and $200 sf if overall living area and basement is all considered the same.
(IF) 90% of all area agents honestly reported sf then the rate for a 1,500 sf house (all else being equal) would be around $333 sf in most buyers eyes. They see a listing for only $300 per sf (its a “2,000 sf” property) or $600,000. In actuality it’s only 1,000 gla and 1,000 finished basement. It will appear to be a ‘better deal’ measured per sf than the first example. Yet it is more than $100,000 over priced.
What we include as ‘living area’ isn’t as important as that it must be universal and it must be honestly reported. I have adjusted basements fully as much as GLA in some instances; and in others adjusted them far less.
IF a basement truly is finished to the same quality and condition as upper living areas with equal or even superior utility, then the market may well recognize its value per sf as the same as overall living area. Though I submit that is NOT USUALLY the exact case. It’s often the claim, but the reality is a lower quality normally exists.
Sadly, ALL the article’s author had to do is advise agents to HONESTLY report living area in accordance with lender rules AND local ordinances concerning basements, stories, and mezzanines.
Clearly the area in photo-left is superior to that in photos-right. It SHOULD contribute more than the one on the right (assuming local market acceptance). How much more depends on the market as well as the quality of the rest of the house.
Scott,
It shouldn’t be included in GLA for two primary reasons: there is a section on page one of the URAR specifically for basements. Two, there’s a section on page one specifically for basements BECAUSE it shouldn’t be rolled into the GLA.
Basements usually have inferior utility and level-of-finish than the rest of the house. Don’t think like a real-estate salesman! Think like an appraiser!
While completing several assignments in the same neighborhood years ago, I noticed that one real estate agent had the majority of the listings/sales and they all sold for considerably more than all other compatible properties. Her listings boasted of how she could get your house sold for more. Many of the homes in the area had finished basements and after further research, it became apparent that she was including the sq.ft. of the basements in her marketing materials as GLA. Including below grade sq.ft. as GLA was against city code. Since everyone in the real estate sales circle was quoting price per sq.ft., her higher list prices made plenty of sense on a price per sq.ft. basis. I don’t know whatever happened to this woman, but she made in the multiple 100k range just from the short window of time I reviewed.
26 years I have been appraising…and I still hear about these gla/basement issues and others…..no wonder they walk all over us !!!