 SandSharkLong may you runPremium,MVM
join:2000-05-23
Santa Fe, TX
kudos:3 | reply to SwedishRider
Re: Appraisals and Finished Basements Do you know if this is just the way it is in your state or is this nationwide? I know it's filmed in Canada, but on HGTV "Income Property", the remodel dude is always telling the homeowners how much more their home re-appraised for after they added a finished apartment in the basement. |
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 SwedishRiderRider on the StormPremium
join:2006-01-11
Connecticut
kudos:1 | said by SandShark:Do you know if this is just the way it is in your state or is this nationwide? I know it's filmed in Canada, but on HGTV "Income Property", the remodel dude is always telling the homeowners how much more their home re-appraised for after they added a finished apartment in the basement.
Good question... not really sure. I would think nationwide as Fannie and Freddie's loan standards apply virtually everywhere. I plan to have a local real estate broker do a walk through to give me a good faith valuation. I'll ask him then. |
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 ropeguruPremium
join:2001-01-25
Mechanicsville, VA | reply to SandShark
I will b e able to let you know the first of next week. Closing on a home on Monday and will know by then whether or not it counted. I can say that it did not for my home owners. |
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tcopePremium
join:2003-05-07
Sandy, UT
kudos:2 | reply to SwedishRider
I just refinanced this past January. I have a finished basement with 2 bedrooms, 1 bathroom and no outside access. The appraiser did include the square footage of the basement he did not label the bedrooms as bedrooms (even though they both have closets). As I understand from my friend, anything below the ground is not a basement. I don't recall the label used but it's noted as more then just a room and the value to the home is higher.
I was in almost the same situation. I refinance a 30 year loan, with 25 years left, to a 25 year loan. In order to avoid PMI (again) I had to make one additional payment. Still, lowered the rate from something around 5.75% down to 3.87%. |
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 alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | reply to SwedishRider
I'm familiar with how evaluators work.
I'm a mortgage underwriter.
I've sat through a few presentations of evaluators and had to analyze a few of their reports (Instead of just looking at the value).
Evaluators don't all work on the same "model", yet I've had the opportunity to have multiple evaluators do the same property and they were all within 5% of each others.
So here's the "what's what"
Some of them will consider a finished basement in their calculations, but only because they have a SQFT/$ model value that compensates for finished basements.
See, a standard $/SQFT model averages in the cost of the kitchen and bathrooms, which are substantially more expensive per SQFT than living rooms and bedrooms. So if they were to add basement SQFT to their multiplication factor, they'd be overstating the value of the house because that model would "insinuate" that the kitchen and bathrooms are BIGGER.
Some evaluators will have adjusted models to lower the $/SQFT value and then get to include the finished basement SQFT in the multiplication. Most cheap evaluators do not go to that extent.
Long story short, the $/SQFT accounts for the existence of a basement.
The cost difference between a finished and unfinished basement is minimal if things are built to the minimum code. Evaluators cannot evaluate the "quality" of the material that isn't visible.
Added FIY for those interested
A proper evaluator will use the $/SQFT model but will ALSO do a market comparison by finding a few comparable houses that were sold in the area and see what they sold for. Then they make adjustments for each to account for differences in land size, quality of X material, number of bathrooms, etc.
In the end, the BIGGEST influence on the market value of a property is LOCATION.
Each freaking evaluator presentation I went to, they made the stupid "location location location" joke. |
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SwedishRiderRider on the StormPremium
join:2006-01-11
Connecticut
kudos:1 | alkizmo, question:
How should my situation with basement 750sf in-law apartment and full second kitchen and full bath have been handled in your opinion? Quality of finishes meets or exceeds rest of house. |
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alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | said by SwedishRider:alkizmo, question:
How should my situation with basement 750sf in-law apartment and full second kitchen and full bath have been handled in your opinion? Quality of finishes meets or exceeds rest of house.
If your house isn't categorized as multiple unit property (Basement as one unit, upstairs are second unit) then the second kitchen has little added value because the market demand isn't there. Only very few non-generic buyers would want to pay extra for a second kitchen.
The full bath can be taken into the calculation. Their evaluation should give some points for that, but it does not add as much value as TWO upstairs full baths (One attached to the master bedroom).
As for the quality of the finishing, well.. only the "aesthetic" material would count. And it would only count where it counts, as in, the REAL main floor kitchen.
Also, there's a limit to what the aesthetic material can add in terms of value. There's basically a conservative cap. If your property isn't classified as "luxury", then they cannot account for a marble kitchen counter top. They can only give the maximum value attributed for "average" house counter tops.
It's really all about what house buyers (For that category of house) would care about in their price decision, and that's:
- Location (I won't do the joke)
- Is the house well maintained?
- Is it still modern-ish?
- Sliding scale $$ for land size/house size/# bathrooms (max 3)
The rest is all superfluous. I'm sorry dude. |
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SwedishRiderRider on the StormPremium
join:2006-01-11
Connecticut
kudos:1 | It's classified as single family with accessory apartment. Finished basement full bath was not factored into the appraisal- he simply gave a dollar credit for the entire basement far below what everyone had expected and that was that...
I'm still curious what a real estate broker who knows my local market well would realistically value it at. I've been told that multi-generational homes are gaining in popularity and some locales forbid them, making the legal ones more valuable to a growing number of buyers who want that particular feature. |
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alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | said by SwedishRider:It's classified as single family with accessory apartment. Finished basement full bath was not factored into the appraisal- he simply gave a dollar credit for the entire basement far below what everyone had expected and that was that...
I'm thinking that the USA is worse off than I imagined.
As I said before, the professional evaluators I work with, will use two models, one with $/SQFT and one with comparisons. Yet those two models always end up with less than 10% difference, which is amazing.
However, as I said, they use the comparison model very closely with the $/SQFT model so they can correct and balance each others to come up with a final market value!
I'm guessing your bank is contracting cheap evaluators that just follow the generic evaluation model from whatever Mortgage Insurer is ruling the USA.
Here in Canada, we have a federal mortgage insurer (Government backed) and they allow us to evaluate houses ONLINE. They do that with statistics of what houses sold for in that area that are comparable. It works well and costs 38$. So when we actually need a professional evaluator for whatever X reason, they charge us a good 400$-600$ but they do a god damn good job. |
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SwedishRiderRider on the StormPremium
join:2006-01-11
Connecticut
kudos:1 | said by alkizmo:As I said before, the professional evaluators I work with, will use two models, one with $/SQFT and one with comparisons. Yet those two models always end up with less than 10% difference, which is amazing..
I have to say that a 10% spread is pretty wide to me.
On a home valued at $250k, 10% is a $25,000 swing either way... and that easily can make the difference in a refi or sale closing or not. |
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alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | said by SwedishRider:I have to say that a 10% spread is pretty wide to me.
It's not, because it's a 10% spread between two completely different ways of evaluating a property. And that 10% is the maximum I've seen. It's usually pretty much closer. The evaluators interpret those two models and adjust based on their professional interpretations. The only reason I noticed the spread is because I don't just read the "Valued at: XXX,XXX$" line. I tend to underwrite luxurious stuff (Not mansions, but McMansions) and it's important that I know what I'm basing my decision on.
I admit that we only contract very experienced and professional evaluator firms (AKA expensive). But that's because when we end up having to use them, we're looking at properties in the 600$K+ values. Those don't tend to successfully go through the online appraisal tool. |
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| reply to SwedishRider
There are rules to if something is GLA (General Living Area) or not. You have above-grade and below-grade. Here's some info on it.
"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."
"B. BASEMENT BEDROOMS, BASEMENT APARTMENTS
As a rule basement space does not count as habitable space. If the bedroom does not have proper light and ventilation, the room can not be included in the gross living area. The following requirements apply to the valuation of below-grade rooms:
o The windowsill may not be higher than 44 inches from
the floor.
o The windowsill must have a net clear opening (width x
height) of at least 24 inches by 36 inches.
o The window should be at ground level; however,
compensating factors may allow less.
In all cases, use reasonable care and judgment. If these
standards are not substantially met, the basement area
cannot be counted as habitable space."
"NATIONAL STANDARDS FOR CALCULATING GROSS LIVING AREA (GLA)
NOTE: THE RESIDENTIAL APPRAISAL REPORT IN THE SALES COMPARISON GRID ANALYZES THE LIVING AREA OF A HOUSE IN TWO (2) DIFFERENT SECTIONS. THE ABOVE GRADE (ROOM COUNT AND THE GROSS LIVING AREA ABOVE GRADE) IN ONE SECTION AND THE BELOW GRADE (BASEMENT & FINISHED ROOMS BELOW GRADE) IN ANOTHER SECTION. TO CALCULATE THESE AREAS THE FOLLOWING GUIDELINES:
1. MEASURE AROUND THE OUTSIDE OF THE HOUSE ABOVE THE FOUNDATION
2. IN MULTI-FLOOR HOUSES COUNT EACH ABOVE GRADE FLOOR
3. INCLUDE ALL 100% ABOVE GRADE HABITABLE LIVING AREA
4. DO NOT INCLUDE THE BASEMENT (EVEN WHEN IT IS FINISHED AND HEATED)
5. GARAGES ARE NEVER INCLUDED IN THE GROSS LIVING AREA
6. PORCHES ARE INCLUDED ONLY WHEN THEY ARE HEATED AND FINISHED IN A WAY SIMILAR IN QUALITY TO THE REST OF THE HOUSE.
7. UPPER STORIES ARE DIVIDED INTO TWO AREAS
A. HABITABLE AREA FINISHED AND HEATED SUBSTANTIALLY LIKE THE REST OF THE HOUSE WITH NORMAL CEILING HEIGHTS (5’ IS USED AS THE MINIMAL NORMAL CEILING HEIGHT)*. DO NOT INCLUDE IN THE GROSS LIVING AREA THAT PORTION THAT IS CLASSIFIED AS ATTIC. [ THE 5’ MINIMAL AREA TYPICALLY COMES INTO PLACE IN A 1 ½ STORY HOME WHERE THE PITCH OF THE ROOF CUTS INTO THE LIVING AREA]
B. ATTIC IN THE UNFINISHED PART OR THAT PART WITH LOW CEILINGS (5’)
8. LOWER LEVELS: RAISED RANCHES (a/k/a BI-LEVELS AND SPLIT FOYERS), HILLSIDE RANCHES, SPLIT LEVEL HOUSE (a/k/a TRI-LEVELS AND QUAD-LEVELS).
[THESE HOME TYPES TYPICALLY HAVE AREA THAT IS PARTIALLY ABOVE GRADE, FINISHED SUBSTANTIALLY LIKE THE REST OF THE HOUSE, BUT BECAUSE THEY ARE NOT FULLY ABOVE GRADE THEY ARE CONSIDERED BASEMENT & FINISHED ROOMS BELOW GRADE]. * *
* * HOUSES OF THE DESIGN MENTIONED IN # 8 ABOVE TYPICALLY RAISE MOST OF THE QUESTIONS REGARDING HOW THE APPRAISER PRESENTS THE HOUSE BECAUSE OF THE DIFFERENCE BETWEEN ABOVE GRADE AND BELOW GRADE DEFINITIONS. IN MOST MUNICIPAL JURISDICTIONS, THE AREAS WHICH ARE PARTIALLY ABOVE GRADE / PARTIALLY BELOW GRADE ARE CONSIDERED HABITABLE LIVING AREA, BY THE HOUSING AND BUILDING CODES . YET, THE APPRAISER’S STANDARDS AS MENTIONED ABOVE REQUIRE THEM TO BE SEPARATED FOR ANALYSIS." |
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| reply to SwedishRider
Hey, enjoy your lower property tax bill due to the lowered appraisal.
All the fees on a refinance are the real scam. I had to pay for an appraisal when I refinanced, even though the value of the land alone exceeded the amount I was borrowing. It didn't matter what the value of the house was, I could have a tarpaper shack there, the bank would still get its money back. But, no, I had to pay for an unnecessary appraisal. |
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SandSharkLong may you runPremium,MVM
join:2000-05-23
Santa Fe, TX
kudos:3 | said by A non :Hey, enjoy your lower property tax bill due to the lowered appraisal.
All the fees on a refinance are the real scam. I had to pay for an appraisal when I refinanced, even though the value of the land alone exceeded the amount I was borrowing. It didn't matter what the value of the house was, I could have a tarpaper shack there, the bank would still get its money back. But, no, I had to pay for an unnecessary appraisal.
I just refinanced and the bank didn't require an appraisal. Of course, by not having an appraisal done, I didn't get the lowest rate I could otherwise have gotten. Then again, also I didn't have to supply as much extraneous documentation to get the loan. |
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alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | said by A nonI had to pay for an appraisal when I refinanced, even though the value of the land alone exceeded the amount I was borrowing. It didn't matter what the value of the house was, I could have a tarpaper shack there, the bank would still get its money back. But, no, I had to pay for an unnecessary appraisal.
[/bquote :The evaluators appraise the value of the land as well. Municipal evaluation isn't good enough. I've seen houses sell for less than their municipal evaluation.
said by SandShark  I just refinanced and the bank didn't require an appraisal. Of course, by not having an appraisal done, I didn't get the lowest rate I could otherwise have gotten. Then again, also I didn't have to supply as much extraneous documentation to get the loan.
[/BQUOTE :Surprising. Here in Canada, either the property's value has been confirmed and you get your loan, or it hasn't been confirmed and you get nothing. There's no in-between.
Then again, we do have a quick/cheap evaluation tool by the Canadian mortgage housing corporation (Mortgage insurer, crown company).
They poll stats from all markets.
You just submit a financing amount, fill in some data (Size, garage, heating, land, address) and if there is enough comparison data, it will tell you if the amount you're financing is okay. Costs 38$ and the bank pays it.
Maybe 1 out of 5 mortgages I do requires a real evaluation and only because I finance a lot of non-cookie-cutter houses. |
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tcopePremium
join:2003-05-07
Sandy, UT
kudos:2 | reply to A non
said by A non :All the fees on a refinance are the real scam. I had to pay for an appraisal when I refinanced, even though the value of the land alone exceeded the amount I was borrowing. It didn't matter what the value of the house was, I could have a tarpaper shack there, the bank would still get its money back. But, no, I had to pay for an unnecessary appraisal. I suppose it would be better that banks just loaned any amount of money on any property without really looking into the value? I seem to recall that this got the entire market into a little bit of trouble several years ago.
While all of the feels are hard to swallow, I can't disagree with an appraisal. First, it's cheap (around $300) and it's there to make sure loans don't exceed values. How do you know the current value of your land and home? Should the bank just accept this information as well? I suppose in some cases they could but I also suppose that there are now _strict_ guidelines on this. No one is forcing you to use that bank... they are not making one dime off the appraisal process. |
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| reply to ropeguru
said by ropeguru:I call it a scam. That is all it has been since day one with appraisers. They do want they want for whom they work for.
Scam is an understatement. Talking with a title guy and a realtor, because of the mortgage/housing fiasco, appraisers now base it on sqft, not amenities/improvements. Take all the pictures you want, show all the receipts, etc... doesn't mean squat anymore to appraiser.
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Splat |
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alkizmo
join:2007-06-25
Pierrefonds, QC
kudos:1 | said by cableties:appraisers now base it on sqft, not amenities/improvements. Take all the pictures you want, show all the receipts, etc... doesn't mean squat anymore to appraiser.
It never did have much importance. The square footage calculation is based on AS NEW value. So they then adjust for depreciation (age).
Renovations/aesthetics will only serve in reducing the depreciation factor.
As for amneties, they're freebies, extras, that people may want/not want and often aren't fixed to the property and have a very limited life, such as alarm systems, central vacuum, garage door opener, shed, etc. You can't "mortgage" those things for 30 years. |
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 Jack_in_VAPremium
join:2007-11-26
Mathews, VA
kudos:1 | said by alkizmo:It never did have much importance. The square footage calculation is based on AS NEW value. So they then adjust for depreciation (age).
Renovations/aesthetics will only serve in reducing the depreciation factor.
As for amneties, they're freebies, extras, that people may want/not want and often aren't fixed to the property and have a very limited life, such as alarm systems, central vacuum, garage door opener, shed, etc. You can't "mortgage" those things for 30 years.
+1 Real World |
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SwedishRiderRider on the StormPremium
join:2006-01-11
Connecticut
kudos:1 | reply to tcope
said by tcope:While all of the feels are hard to swallow, I can't disagree with an appraisal. First, it's cheap (around $300) and it's there to make sure loans don't exceed values. How do you know the current value of your land and home? Should the bank just accept this information as well? I suppose in some cases they could but I also suppose that there are now _strict_ guidelines on this. No one is forcing you to use that bank... they are not making one dime off the appraisal process.
I can disagree... If one has a fully finished walkout basement with finishes of equal or greater quality, then I do think that should be factored into the square footage calculation. Maybe not at full value, but to disregard it or to blindly give it a "pennies on the dollar" valuation seems unconscionable to me.
If it's finished space where one can live and use... it should be counted substantially and not just valued as an afterthought by an appraiser... |
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