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House sizing: a cooperative venture.

"What is the square footage of that house?" It may seem like a simple question, but in fact providing a definitive answer is far from easy. Many articles have been written in an attempt to resolve the measurement dilemma, but the fact remains that appraisers, real estate agents, and government agencies use different guidelines to arrive at the best and most accurate figures. Unless all those involved agree on a sizing system the process will continue to lack consistency and effectiveness.

About five years ago, a local committee of appraisers and agents wrote the "Oshkosh Multiple Listing Service (MLS) Description and Sizing Policy," which has since been printed at the beginning of every local MLS book. Several boards in the Oshkosh, Wisconsin, area have subsequently printed sizing guides in their sales books. The policy states that the listed size of a house is to be the gross living area (GLA) as defined by the Federal National Mortgage Association (Fannie Mae). When the local policy first appeared, appraisers were satisfied because they would be getting more consistent measurement information. Real estate agents--who are key participants in the house-sizing problem because, at least in the Oshkosh market, they contribute most of the sizing information used for comparable sales in residential appraisals--were a little less enthusiastic about the policy because it contained only the GLA measurement and lacked information on the total finished area (TFA). They felt the system failed to show a potential buyer the actual living area of multilevel houses, insisting that the finished space in the lower level of a trilevel or bilevel home should be included in the size of a house. As a compromise, the appraisers revised the policy to accommodate the agents' concern and arrived at the policy in use today. This is not presented as a perfect system, but simply one that is better than what was used before.

The GLA description used in the policy is taken from Focus: Appraisal Guide, published by Fannie Mae, which states:

The appraiser must be consistent when he or she calculates and reports the finished above-grade room count and the square feet of gross living area that is above grade. For units in condominium or cooperative projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area. In all other instances, the appraiser should use the exterior building dimensions per floor to calculate a property's above-grade gross living area. Only finished above-grade areas should be used--garages and basements (including those that are partial above grade) should not be included. We consider a level 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. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count.

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" adjustment grid. To assure consistency in the sales comparison analysis, the appraiser generally should compare above-grade areas to above-grade areas and below-grade areas to below-grade areas. However, if the appraiser needs to deviate from this approach because of the style of the subject property or any of the comparables, he or she must explain the reason for the deviation and clearly describe the comparisons that are being made.(1)

This is a relatively simple policy, and provides an example of the communication that occurs between the secondary market and the appraisers. It is not intended to cover every facet of every home that requires an appraisal. Since no two homes are identical and each has unique features, no policy could be written to cover all possibilities. The policy is simple, and variations should be covered in the appraiser's remarks.

Real estate agents, however, are not bound by Fannie Mae policy. While appraisers are required to report GLA, local agents are not. Agents insist that the TFA is a better measurement to describe the size or livability of a house. This is the reason both the GLA and the TFA are included on every listing in our MLS. Interestingly, Fannie Mae includes a measurement similar to the TFA in multiunit structures. Having both GLA and TFA measurements for the subject and all comparable sales provides details that neither can provide alone.

As indicated in the policy, the GLA is identical to the TFA for one-, one-and-one-half-, and two-story houses. Finished areas in true basement levels are never included in either measurement. The inclusion or exclusion of areas such as these, however, is not the real issue. The true objective is consistency among the groups who use the system.

One-story homes are the easiest to measure; simply measure the perimeter and calculate the size. Two-story homes are slightly more difficult, because it is almost impossible to directly measure the second story. Typically, sight lines are taken from the first story to determine the second story's size. One-and-one-half-story homes are not difficult to measure in a physical sense, but it is hard to get consistent results from all who are doing the measuring. In this case, the second story is measured from the inside to include all finished areas with a ceiling height of 5 feet or more. For example, the second story might measure 7 feet by 36 feet, for a total of 252 square feet, but the usable area could actually include much more space than this if the area that measures less than 5 feet high is included. This additional area would be an appropriate item for the remarks section of an MLS sheet or an appraisal. The inclusion of this type of remark is the reason that total space measurements for one-and-one-half-story houses often differ with each person who provides a measurement.

Multilevel homes are the homes appraisers have the most trouble with, because the GLA and the TFA can be different, with the TFA equal to or greater than the GLA. For example, the GLA of a bilevel home includes only the upper level, while the TFA includes the upper level and the finished area of the lower level. Walkouts or hillside ranches are handled the same as bilevels. The GLA of a trilevel includes the first (i.e., ground) level and the upper level, but the TFA includes the first story, upper level, and the finished part of the lower level. The basement level is not included at any time. Any other style, which is a rarity in this market, is handled on an individual basis.

Marshall and Swift's Residential Cost Handbook uses what amounts to the TFA to compute the cost for trilevel homes.(2) This creates a problem when this service is used for the cost approach on the Uniform Residential Appraisal Report form. If the TFA is entered into the cost approach box, the size does not agree with the size used in the adjustment grid, which should be the GLA. This situation requires an explanation in the addendum.

Another problem with using the TFA measurement is the description of a basement. According to Fannie Mae guidelines, the lower level is technically considered part of the basement. If there is a true basement level, then the house is considered to have a full basement. If there is simply a crawl space in addition to the lower level, it is a partial basement. Using the TFA confuses this distinction. Because the lower level has been considered in the house size, perhaps the basement level should be considered as partial. Consistency in this area is yet to be achieved. If a basement is listed as partial, it may not be clear whether the listing agent considered the basement to be partial because the lower level is included in the TFA or because there is a crawl space. For this reason, we have encouraged the use of the quad-level description to describe a house with a true basement level.

Some real estate agents do not like to include measurements in their work because they fear liability; an overstatement or understatement of the size could be considered a misrepresentation of the facts. For this reason, the measurements for both GLA and TFA are given as "plus or minus 10%." Considering the difficulty of measuring homes that are not square or rectangular, this comment seems like a reasonable addition. Further, the shape is not the only obstacle to measuring a house. Circumstances surrounding a job are often less than ideal; measuring from a blueprint is one thing, but throwing a tape on a house when it is raining, snowing, or dark outside is different. Appraisers work around bushes, ladders, downspouts, flower gardens, siding corners that will not hold a tape, and new-construction mud. These factors are real, and a small, allowable variance seems reasonable. Obviously, the system is open to abuse--a real estate agent could inflate the size of a listing by 5% and still stay within the system--but so far we have not seen this happen. If such abuses do occur, they should be addressed by disciplining the culprit, not by gutting the system.

One of the best defenses against the potential liability problems is consistency. This program is designed to give consistency to the reported measurements yet allow leeway for measurement problems. Some definite problem areas that are not included in the guide but can be addressed on an individual basis include:

* Outside fireplaces. When a fireplace flue is simply boxed in and attached to the exterior of the house, is it included in the GLA? We do not include them.

* Box windows and bow-type windows that project out from the wall of the house. We follow a simple rule: If it has no floor, it is not included in the size measurements; if it has a floor, it is counted.

* Clerestory space. For instance, how is a two-story great room covered? As with the box windows, it has to have a floor if we are going to count the space in overall size. A two-story room is counted once. Balconies and walkways need only have floors to be included.

* Sun rooms and converted enclosed porches. These spaces, while adding greatly to the value of the subject, may or may not be included in the size measurements. In order to be included, all surfaces--floors, walls, and ceilings--must be of GLA quality. In addition, there must be adequate electrical service and heat or air conditioning from the central system of the house. Electrical heaters that are directly wired make the room sufficient for inclusion, but portable heaters that plug into regular outlets do not.

* Basement space. This is never included in size measurements regardless of the quality of the finish. At what height a crawl space becomes a basement should also be considered; if it is under 5 feet high, we ask that the actual height be given.

* One-and-one-half- and two-story houses. The point at which a one-and-one-half-story house becomes a two-story house should be determined. Do the walls on the second story all have to be a full 8 feet tall? How about houses with just the corners different between the two stories? What percentage of the first floor must the second floor be to be a two-story rather than a one-and-one-half-story house? There is no definite answer to these questions, so comments in the remarks section are based on discretion and judgment.

* Stairways and two-story foyers. Fannie Mae definitions do not include a deduction for stairway space even though there is only one floor area. We follow this guideline: As in a two-story home, the stairways in bilevel and trilevel homes are counted in both levels. Two-story foyers are deducted only if they are very large.

* Trilevels that have the lower-level portion buried in the ground. What then, is a house called if all three levels are above ground? We use the terms one- or two-story house.

* Windowless lower level. We use the remarks section to note this feature.

This system for cooperation cannot please everyone all of the time. Some real estate agents do not like to be pinned down to an exact measurement for size. They get paid for selling property, not describing it. Appraisers feel they do not get enough precise information on all of the sales. This system is not perfect and probably never will be, but it works better than previous methods.

1. Federal National Mortgage Association, Focus: Appraisal Guide (Washington, D.C.: Federal National Mortgage Association), 406.05.

2. Marshall and Swift, Residential Cost Handbook (Los Angeles: Marshall and Swift, 1991), 4.

Jim Smith, SRA, is a practicing appraiser in the Oshkosh, Wisconsin, area. He is a former president of the Northeast Chapter of the Appraisal Institute. Mr. Smith has taught appraisal courses for the Appraisal Institute, Fox Valley Technical College, The Wisconsin Realtors Association, and the University of Wisconsin, Milwaukee--Extension.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Smith, Jim
Publication:Appraisal Journal
Date:Oct 1, 1993
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