Guy Andrews, CMA Appraisals, Inc.

Gross living area or GLA according to Corelogic, is one of the most frequently adjusted features in the sales comparison approach of an appraisal report, with 96.4% of reports having comparable sales being adjusted for differences in GLA. Fannie Mae selling guide defines GLA as “finished above-grade areas” calculated by using exterior dimensions per floor for detached single unit homes specifically excluding garages and basements. These standards are designed to create consistency for appraisers in the reporting of GLA for the subject and comparable sales. Appraisers who prepare residential appraisal reports for secondary market lending, know that if they report GLA or room count (also condition, view, or quality) on a property differently than they have on a previous report or than an appraiser peer has, the appraisal data mining police from Uniform Collateral Data Portal, will put a hard stop on the appraisal underwriting process. It often won’t move forward until the appraiser provides comment on the discrepancy. But discrepancies do exist in the data we use, which is why our data is only as good as our confirmation process. The process for calculating GLA and below grade finish should be based on industry standards and have consistency from appraiser to appraiser.

NNEREN MLS is often the first data source used to locate closed sales that may be comparable to the subject property. During the data collection and confirmation phase, of which I pursue five sources for data and confirmation: MLS, town records, an exterior inspection and when I am able, conversation with the buyer or seller and the appraiser who authored the appraisal report for financing. I frequently find discrepancies in the salient data about a property when comparing the real estate listing, the public record and the appraiser’s data sheet. Picture me, in my truck, radio playing (probably rock and roll), coffee at the ready, camera in hand looking at a modest ranch home and thinking: am I at the correct address, and how can that be 1536 square feet?

Most appraisers use the American National Standards Institute (ANSI) measuring standard, which provides generally accepted guidelines on how to measure homes. ANSI offers calculation methods for trickier items like measuring kneewalls, acceptable ceiling height, vaulted areas and not including basement finish and detached living areas in GLA calculations. Where much confusion and inconsistency lies within the real estate community is how to differentiate between GLA and finished walkout basements.

Appraisers know that that the Fannie Mae selling guide states: a level is considered to be below-grade if any portion of it is below-grade, regardless of the quality of its finish or the window area of any room and that a walkout on grade basement with finished rooms would not be included in the GLA and above grade room count. A basic rule of thumb is that if any level of a home is below grade (“grade” means: the ground level at the perimeter of the exterior finished surface of a house) even if it is walkout on grade on three sides, with full sized windows, abundant natural lighting and with quality of finishes similar to the above grade levels, this level should not be included in the GLA. Even partially below grade levels should be measured and reported as basement finish and rooms below grade. Homes such as raised ranches, hillside ranches or split level homes feature daylight or walkout on grade basements that often have finished living space that is designed as an integral part of the home. Having much of the effective living space located in a day light or walkout basement is appealing as these lower levels often feel fully above grade and abundant natural lighting enhances the livability of the lower level. There is also a very good chance that the finish in these day light or walkout basements contributes a higher value per square foot than finished areas in fully below grade basements, and perhaps a similar value per square foot as a fully above grade level. Never the less even very good quality basement finish should not be confused with or included in the GLA.

Accessory units, which are generally self-contained living areas that are less than 30% of the total living area and are incidental to the highest and best use of an owner occupied, single unit home can also add challenges for measuring GLA and room counts. Freddie Mac allow homes with accessory units to be reported and delivered for underwriting on the 1004_UAD Appraisal form. These units are generally accessible to the main living areas without going outside or through an unfinished area to gain access. When appraisers come across accessory units, they must consider their highest and best use analysis (legally permissible), when deciding how to report these features. The same tests for measuring GLA in above grade finished areas, applies with accessory units. If the accessory unit is finished, heated, above grade living space and one does not have to walk through an unfinished garage or outside to access the unit, then it should be included in the GLA and room count.

Appraisers must demonstrate competency in properly calculating GLA by knowing when to separate above and below grade finish. Competency is a foundation of USPAP and a rule for appraisers. A majority of the time, GLA is a motivating factor for buyers in the market, so it must be properly calculated with the appraiser’s data confirmation as a form of checks and balances to ensure the right information is being used. Enjoy your hours of data confirmation and drive by inspections appraisers; embrace this task, your coffee and steering wheel, turn up the volume and get to it, because your data is only as good as your confirmation sources. Other real estate professionals should find it useful knowing how appraisers are required by the secondary market to calculate GLA. By demonstrating consistency in our application of basic measurement techniques, we can provide consistent and accurate data to our appraiser peers. Most importantly we can continue to provide reliable advice and accurate information to homeowners, real estate agents and the lending community, further promoting the public trust of appraisers, just the way USPAP tells us to.

Guy Andrews, SRA, certified residential appraiser of CMA Appraisals, INC and immediate past president of the Vermont Chapter of the Appraisal Institute, Montpelier, VT.