When determining the value of a home, your agent will first take into consideration the home's Gross Living Area, otherwise known as square footage.
The Gross Living Area of your home includes the fully-finished, above-grade areas of your home. Typically not included are basements, attics, garages and enclosed or covered porches.
One of the most common discrepancies I see with homes listed for sale here in the Danbury, Connecticut area is that sellers and their agents sometimes include a finished basement in the total square footage of the home. Below-grade areas, whether finished or not, are not calculated into the total square footage of a house.
An unfinished basement will add a some value to your home versus a home that is built on a slab, without a basement. And, of course, a finished basement will certainly add value to your home versus a home with an unfinished basement. However, basement spaces do not add to the Gross Living Area total for the home, and whether finished or not, basement areas are not valued by appraisers the same as above-grade living areas.
Adding a finished basement's square footage into the total square footage of the home is misleading and deceptive. Pricing your home based on this misleading figure will result in a price that cannot be substantiated via an appraisal, which is a contingency in most transactions requiring mortgage financing. Should the buyers and their agent not realize the square footage error and write an offer based on what turns out to be an exaggerated square footage total, your sale will most certainly hit gridlock when the appraisal value comes in lower than the contracted purchase price.
Appraisers and their appraisals protect both the lender and the homebuyer from overpaying for a house. Appraisers do not attempt to justify contract prices. Rather, they review the subject home, comparable sales and market conditions to determine an unbiased value of your home. Again, it should be repeated that whether finished or not, basement areas are not valued by appraisers the same as above-grade living areas.
Some exceptions may apply, such as the lower level of a Raised Ranch-style home being included in the total square footage, if that is customary in your area. Other local customs may take precedence in other areas, and they will traditionally be applied across-the-board.
Be sure to advertise your home with the correct square footage. Real estate marketing should be honest and will thus generate the best results.
Any relations to Eddy Fabrizio? This is one of my dad's good friends from Rhode Island growing up. He would be in his 50's...
Scott
Lloyd - Some counties are better than others when it comes to having accurate information about houses. Here in New England, we're more concerned with "heated" spaces instead of "air conditioned" spaces!
Scott - No relation that I know of. But if he lives near Newport I'll pretend to be related in exchange for a place to stay...
Don,
out market doesn't use square footage! Yup. We don't have squre footage on our MLS sheets. So we learn to comp properties somewhat differently. After a while, you just know that price range.
And, they do appraise out!
I've got to think that more information is better than less. I think prospective buyers and real estate professionals should be equipped with all the information.
Square Feet heated
Square Feet cooled
Square Feet totally finished
This arbitrary requirement that the basement be banned from calculation is lacking in transparency. You even suggest that raised ranches may be counted on their lower levels ... so if a basement is 4 feet out of the ground in the rear of the home (what we call daylighted) then the area can be counted?
In our market we compete with bi-level homes. Do they get a benefit over a ranch style or two story style home in MLS? That's not open and fair and transparent at all.
Eileen - I've seen some local MLS's that do not use square footage due to liability concerns - if a buyer finds out their new home is not as large as they thought, the can unfortunately become litigious.
Do your local appraisers measure the homes to determine square footage?
Steve - Your local customs may differ from national standards and guidelines. That is acceptable, as long as they standard in your area. I'm assuming what you call a bi-level home is what we call a raised-ranch in our area (enter the front door, and you have a 1/2 flight of stairs to go either up or down).
If the lower level of a bi-level is included in that home's square footage in your area, then that should be used by appraisers when comparing it to other bi-level homes. If style of home is an important value indicator in your area, as it here in my area of Connecticut, then a bi-level home won't be used as a comparable sale for, say, a colonial home, without a corresponding value adjustment for style. We typically use about a 10% price adjustment for style for a colonial vs. a ranch or a raised ranch (colonials are valued higher as they are the more desired style here).
And, yes, transparency is key. I like to see in the MLS a comments such as: "3,500 square foot home plus 750 square foot finished basement." That's transparency. More information and more disclosure better serve all of our clients.
Good post Don. Here in Southern Indiana we list them two ways. The official square footage(without the basement) is listed in the header. Then further down the page we have a place for Total Finished Living Space which includes all areas of the house.
On a side note, I always put in my listings that all sq ft is approximate.
As a Licensed Residential Appraiser, I appreciate your comments on the Appraiser 's function and responsibilities in the overall transaction. I would like to further add that what we consider to be living area - vs- basement area is determined by FNMAE and ANSI standards for measuring residential properties. So we actually do have reasons for what we do, we're not always just pulling something from our behinds!!!
Good Post!!!
Maryanne - Thanks for bringing the professional appraiser's voice to this post. You are right - there are federal guidelines that appraisers must adhere to. We need to teach real estate agents what these guidelines are so that we can avoid misrepresenting values to buyers and sellers. Unfortunately, I find that many agents do not want to hear about federal guidelines. That is something that brokerage firms need to take up with their agents.
Pricing a home is key for real estate agents - whether they are representing the buyer or the seller. Square footage is a major issue in pricing. By exaggerating that square footage figure by including basement areas that will not be factored in by appraisers in the same manner as above-grade areas is misrepresenting the home and potentially leading clients astray. Misrepresentation of square footage figures can also lead to potential lawsuits.
Basement areas, and how they are factored in to a home's value, is something that is greatly misunderstood by many real estate agents. More education is needed. That's part of the reason I have completed all of my appraisal licensing courses.
HELP!! We are looking at a house that has a finished basement (inlaw suite), bedroom, bathroom, full kitchen and living room area (1000 s.f.) Main house is 3375 s.f. Unfortunately, when checking the Town Hall, I discovered that the basement wasn't listed as finished and further inquired. It was never permitted so therefore, they are not being taxed on it. The Seller is willing to get it post permitted but doesn't want us to be able to walk if the taxes are significantly changed. That's a problem as I am concerned that the taxes will be substantial on such a large and really nicely finished basement area. How should I proceed? Is the basement appraised the same as the upper level or is there a p.s.f. rate that is applied to the basement space. Then I can figure in the 70% standard that CT uses and possibly arrive at the increased tax figure? Should the Seller engage an appraiser and go from there? We don't want to lose the deal but we don't want to get killed due to increased taxes either. Looking for some direction, PLEASE!
Mary
Mary, I can't tell you how to proceed in your specific situation, as I am not a part of your transaction and may not know all the details. There are actually a few issues here that you are dealing with. However, I can provide you with some general information that may be of help.
A finished basement should not be counted in the assessment (or in an appraisal) as having the same value as the above-grade living areas of the house. I just checked the online assessment database here in New Fairfield, and one home with a partial finished basement had that area assessed at $19 per square foot (this number may be and probably will be different in your town and possibly dependent upon the quality of the work). The above-grade areas are assessed much higher. So, the tax assessment on the finished basement should be lower than the tax assessment on above-grade living areas.
As far as permits, it is good that the seller is willing to now have the work permitted by the town. This will relieve you from any potential future issues if the work is not done correctly or does not meet town codes. You mention that the basement is an in-law suite with a kitchen. Is this allowed in your area? If not, it is possible the town may order it removed. Does this make the home a two-family home, and is that allowed in the area? If not, the town may order it removed. Is the electrical and plumbing up to code? If not, the town may order it corrected or removed. Is the electrical and plumbing all behind finished walls? If so, they town may order the walls removed so they may inspect the work.
Please notice that I've used the terms "may" or "should" a lot. As I am not representing you in this transaction, I may not be fully aware of all issues. Also, these issues are really up to the town building department and the town's tax assessor.
Here is what I would recommend:
Get as much information as you can. Then you will have some choices to make:
Buying a home is both emotional and stressful. Keep that in the back of your mind as you deal with these issues. Remember to breathe. Remember to breathe deeply. Take a break from the issues for a few hours or even a day if needed, so that you can try to examine the issues again with a clearer head.
I hope this helps, and I of course wish you the best of luck with your home purchase.