My Month as “Ask the Expert”

I just finished my month as the “Ask the Expert” for REBAC. Since I am also an appraiser, valuation questions were my assigned topic. First of all, I have to say it was so much fun I’d do it again –in a heartbeat! Second of all, I was very impressed by both the thoughtful questions I received and the obvious genuine desire on the part of agents to understand pricing and valuation, and do it right.
There were some themes that several questions returned to, so I’m going to recap here (not word for word), one of the major issues, in an effort to help both sides of this aisle—the agents and the appraisers.
Without a doubt, one of the number one myths some agents have is that appraisers don’t ‘count’ finished area below grade. We most certainly do! The big issue is an understanding of Fannie Mae guidelines. When I teach anything to do with financing or appraising to agents, I always refer to Fannie Mae as the ‘eight hundred pound gorilla’. That’s because it is—in the sense that most residential mortgages are going to be done to Fannie Mae guidelines. The application will be taken on a Fannie Mae form; the borrower will meet Fannie Mae Guidelines; the appraiser will be asked to complete a Fannie Mae Appraisal Form (including, these days, the troublesome 1004MC) and the appraisal must be done to Fannie Mae Guidelines. Fannie Mae has always had the same position on square footage: the appraiser is to measure the exterior of the house above grade to calculate the living area. All of this area must be totally above grade. So, if the house is a split, or a bi-level, or another local term you use for a home where part of the living area is below grade—it doesn’t count—in the above grade living area. It does count as “finished area below grade”. This usually gets the ‘but what if’ questions, as in: “What if the house is walk out at the rear?” Answer: “What is the front like? In the typical walk out at rear house, the opposite side is either completely or partially below grade, depending upon the grade of the lot. This particular issue causes a lot of ill will between appraisers and agents. Here’s the agent side, possibly learned at the feet of the broker: “We are selling finished square footage, so count it all and put it in the MLS. Don’t measure the house, that is too risky!” My answer: “Hello????? You are competent enough to take and pass a real estate test and you don’t think you can measure the outside of a house? Get a grip!” Furthermore—by ‘counting’ all the square footage and putting it into the MLS that way, you create false information for an appraiser. Furthermore, if you took that 30 x 40 house with a finished basement, and called it a 2400 square foot house, not a 1200 square foot house, and compounded your error by developing a CMA by comparing this 1200 square foot house (with a finished basement) to houses that really have 2400 square feet (above grade), you will get the wrong answer. That’s math, folks. If you start with a flawed assumption, you get a wrong answer. Here’s the appraiser side (hold on to your hats, I’m paraphrasing many, many appraisers (I teach them as well) and they aren’t tactful): “These @#$%^*+ agents don’t know a $#@% thing! They can’t measure a house to save their lives, and everything they have in the MLS is wrong! How can we do our job if they keep putting the wrong data into MLS?”
Sigh! We have some issues here folks. And, we need each other. I personally am both of you—I’m an active agent, and an active appraiser—and an instructor, to boot, so I get to hear your unvarnished opinions of each other. Here’s the deal, folks. Agents, you need appraisers. Without loan approval, we don’t have closings; without closings, we don’t get paid. Getting approvals, followed by closings and commissions, is a good thing. Appraisers need you for information that you may not put in the MLS. I constantly tell appraisers you are often the first group to feel the tremors of a changing market—you are ‘on the ground’. Appraisers, you need agents. As I just pointed out, they can be wonderful sources of information that may not be in the MLS. I have discovered a changing market through discussions with agents, as well as the ‘real reason’ a house didn’t sell—which can be anything from a strong cat smell to an uncooperative seller. Without agents selling houses, we are stuck with non-brokered sales, and those things are nightmares to use as comps because of the problems verifying the data. So, here’s my proposal: agents—can you start trying to measure houses—and get it right? Report below grade area as below grade—the appraisers promise they will ‘count it’. Appraisers, educate the agents in your area about how you come up with adjustments and why. Use the ‘better information’ I hope you will soon get to do your work, so that loans will close, agents will have commissions, you will have fees, and comps. After all folks, at the end of the day—we are all REALTORS®–or at least I hope you are.

Melanie McLane

Melanie McLane, ABR, CRB, RAA, is owner of McLane Solutions, a real estate education and training company in Jersey Shore, Pa. She is also a certified residential appraiser and an associate broker with Jackson Real Estate in Jersey Shore. In addition to the ABR, CRB, and RAA, McLane holds a number of other designations and certifications from the NATIONAL ASSOCIATION OF REALTORS® and other organizations, and she is a nationally recognized speaker.

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  1. Well said! Having practiced real estate in Colorado and Las Vegas (slab on grade), it would be helpful if our local associations would include a “below grade” field in the MLS data sheet—in the spirit of accuracy. Then the only challenge for the agent is to figure out how to use the tape measurer. That’s the long fabric thing with the little crank handle?

  2. peggy Erbe

    I,ve applied for refinancing-805 #,21% loan to value,value $469,-519,
    loan amount 200, we have a mother in law suite and underwriting doesen’t want to underwrite. The home is in exceptional condition & location-what is the problem?

  3. Richard

    The North Carolina Real Estate Commission square footage guideines states “While real estate agents are encouraged to provide the most complete information available about properties offered for sale, the Guidelines recognize that the separate reporting of “above-grade” and “below-grade” area can be impractical in the advertising and marketing of homes. For this reason, real estate agents are permitted under these Guidelines to report square footage of the dwelling as the total “living area” without a separate distinction between “above-grade” and “below-grade” areas. However, to help avoid confusion and concern, agents should alert purchasers and sellers that the appraisal report may reflect differences in the way living area is defined and described by the lender, appraiser, and the North Carolina Building Code which could affect the amount of living area reported.” How can you argue with that?

  4. Maryland does this well. Our MLS has above ground finished square footage, below ground finished square footage and total living square footage. Takes the guesswork out.

  5. John Jenkins

    It is my understandng that our state sponsored E & O provider will not cover Brokers/Agents errors when measuring a house because agents are not trained for computing square footage, and both the Insurance Carrier and the Real Estate Commission highly discourage Agents from measuring houses.

  6. Chuck Egeler

    I would like to know in terms of value what determines the value of the sf below grade if it walkout, finished or unfinished, est.
    I know the value is less, but is there a standard as to the value?

  7. This may be a bit dated, but the comment on what the NC Guideline says leaves a few words out. It actually says that sqft can be counted as one total for advertising purposes only and that it must be reported in closed info as a separate number. All above and below grade is consistent with every measurement method or standard.