Dawn M. Molitor-Gennrich, SRA, AI-RRS (email@example.com), is president of Molitor-Gennrich Consulting Inc., Walnut Creek, Calif., and a former member of the Appraisal Standards Board of The Appraisal Foundation.
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Why Do Square Footage Disputes Arise?
Be ready to explain to home buyers and sellers why there may be conflicting reports on a home’s livable space.
May 1, 2021
Many characteristics affect the appeal, marketability, and value of a property. One of the most important is the size of the dwelling. Disputes rarely arise about the age of a home or the number of bedrooms, baths, or garage spaces. Disagreements about square footage, and the manner by which the dwelling size is calculated, are more common. Unfortunately, if the methods applied are not accurate and explained, they may result in misleading opinions and conclusions. Because dwelling size matters to everyone in the transaction—buyers, sellers, agents, appraisers, and lenders—it makes sense to encourage the understanding and use of industry-accepted terms to define size.
Appraisers use three approaches to develop an opinion of the value of a home:
- The sales comparison approach looks at the subject property against similar, nearby recently sold properties.
- The cost approach considers the value of the site and the estimated cost to replace the subject dwelling, less depreciation.
- The income approach, generally applied to multiunit dwellings, is applied where rental income is a factor in the decision-making process of buyers and sellers.
All are contained within the Uniform Residential Appraisal Report, the residential appraisal reporting standard promulgated by Fannie Mae and Freddie Mac. The report form uses the term “gross living area” rather than “square footage” to identify the size of a dwelling and as a unit of comparison in the sales comparison approach.
The agencies involved in residential lending—Fannie Mae, Freddie Mac, the Department of Veterans Affairs, and the Federal Housing Administration—have slightly varying definitions of gross living area, but all agree on these facts:
- Gross living area is the finished, above-grade residential area.
- Gross living area does not include unfinished spaces (e.g., exposed floor joists, wall studs, and roof rafters) or unlivable areas (e.g., stairwells, stair landings), either above or below grade. Therefore, any area, either partially or fully below grade—like a walk-out basement—is not recognized as gross living area.
- Areas like garages, porches, patios, and finished areas not accessible from the interior of the primary dwelling, including accessory dwelling units, are also excluded from the gross living area.
The agencies’ standards recognize situations when finished attics, garage conversions, and additions may be included in the gross living area, specifically when such improvements are accessible from the interior of the primary dwelling and have a permanent, sufficient heat source, as well as similar design and quality of construction. to the primary dwelling. Note: Floor plan functionality may affect marketability and value. For finished attics, the same criteria are considered, with attention to access and the determination of livable ceiling height area. For example, the FHA requires rooms and bathrooms to have a minimum ceiling height of 7 feet for 50% of the room’s floor area. The remaining area must have a minimum height of 5 feet.
- ANSI Z765-2021, a standard for calculating square footage, from Home Innovation Research Labs
- Single-family Housing Policy Handbook from the Department of Housing & Urban Development (PDF, see page 578).
- Appraisal Requirements from Fannie Mae.
- Property Description and Analysis from Freddie Mac.
- A Guide to Understanding Residential Appraisal from The Appraisal Foundation.
The cost and quality of finish aren’t determinants of what’s included in gross living area. From an appraiser’s perspective, however, areas excluded from the calculation may still contribute substantially to the appeal, marketability, and value of the property. Examples include finished and unfinished basements and below-grade rooms.
Disputes over square footage can result because the standards for state and county public records do not necessarily coincide with the agencies’ standards for the URAR. Except in new construction, where plans are provided, the scope of work for URAR assignments requires appraisers to measure the property. Appraisers use exterior dimensions of each floor in the structure to calculate the gross living area for detached and attached one-unit housing. For condominium housing in multiunit buildings, interior perimeter dimensions are used. Where differences in data sources exist, appraisers must explain the difference in their report.
In addition to the standards published by the agencies, there’s a national voluntary standard for calculating square footage, ANSI Z765-2021. Even though it’s a voluntary standard, several states require appraisers to comply with the ANSI standard.
Although all the above appears to be absolute, the agencies realize exceptions to their standards exist. In some markets, for example, finished below-grade areas are included in the gross living area because it is common or predominant in that market due to terrain or climate. In such instances, when developing a sales comparison analysis, appraisers must treat all data collected in a consistent manner and clearly explain the reason for all deviations.
As noted earlier, space contributes to the appeal and marketability of a home. Be sure to be informed when talking to buyers and sellers about the spaces within a home. If you’re talking about square footage, recognize that the gross living area calculation used by an appraiser may not match public records, but it enables appraisers to develop a credible comparison in the sales comparison approach and a credible cost approach that will lead to a supported opinion of market value of the subject property.
Francois K. Gregoire, AHWD, RAA (firstname.lastname@example.org), is president of Gregoire & Gregoire Inc., St Petersburg, Fla., and 2021 vice chair of the National Association of REALTORS®’ Real Property Valuation Committee.
April 9, 2021
New types of data to determine prospective buyers’ creditworthiness may increase homeownership opportunities for Black and Hispanic Americans. However, standards need to be developed for the use of such data—which come from sources outside traditional credit bureaus—to ensure equitable and responsible lending practices, experts said Thursday during a National Association of REALTORS® webinar on alternative credit scoring.
Ann Schnare and Vanessa Perry, authors of the white paper “Tipping the SCALE: How Alternative Data in Credit Scoring Promote or Impede Fair Lending Goals,” said 21% of Black households and 19% of Hispanic households are considered “unscorable” because they don’t have access to traditional credit. Schnare and Perry suggested that three alternative data sets could help lenders determine “credit-invisible” consumers’ eligibility for loan products, including:
- Credit proxies: Payment histories for bills such as rent, utilities, and other financial obligations, which can suggest a person’s ability to pay and likelihood to default.
- Banking data: Account balances, check-writing history, and savings—information that can tell lenders whether a person is financially stable.
- Non financial personal data: Data harvested from a person’s digital footprint, such as spending patterns and social media activity suggestive of their purchasing power or financial status.
“Minorities are far more likely to be ‘unscorable’ or have relatively weak credit scores using traditional credit bureau data,” said Schnare, president of AB Schnare Associates, a consulting firm specializing in housing and mortgage finance. “Incorporating additional data into the credit evaluation process can open doors for many deserving borrowers and boost minority homeownership rates.” She added that some countries where credit agencies don’t exist are already using alternative data to shape lending practices.
But such data could be misused without legal safeguards, said Perry, professor of marketing, strategic management, and public policy at The George Washington University’s School of Business. “When we start looking at how and where people spend their money, those kinds of indicators can be proxies for race, gender, or neighborhood,” Perry said. “Some of the same issues can apply in the case of social media data. People are assigned a trustworthiness score based on who they associate with online, which is obviously problematic.”
Schnare said banking data likely is the most promising source of alternative data for credit scoring because it’s a more objective way to evaluate someone’s finances and requires the consumer’s approval, which offers a layer of privacy protection. No matter which source of data is used, though, any lending practices around alternative credit scoring should meet the standards of what Schnare and Perry call SCALE.
- Societal values: Does the practice respect social and ethical norms, such as the right to privacy?
- Contextual integrity: Regardless of predictive value, is it relevant to mortgages?
- Accuracy: Does the data accurately reflect the household’s financial situation?
- Legality: Would the use of the data have a disparate impact on protected classes?
- Expanded opportunity: Would the use of the data increase the number of qualified borrowers?
“The rise of big data greatly expands the options for credit scoring,” Perry noted. “However, predictability is not enough to justify the use of certain kinds of data. Their use must also be consistent with broader social and ethical values.”
NAR President Charlie Oppler said during the webinar that the association plans to use Schnare and Perry’s research to help shape its policy positions and inform its future advocacy efforts on credit scoring.
“A borrower’s credit report and credit score are the gateway to a mortgage,” Oppler said. “But for too long, inaccurate credit reporting methods have raised the cost to borrow while limiting access to mortgage credit for prospective borrowers, particularly those from minority populations and rural communities.”
I hope your week is going well and I hope you have a wonderful weekend! I am seeing quite a bit of frustration out there as I know you are with clients that don’t get the house they want, and who knows when this will ever open up again. So yesterday, I started to think are rents pushing prices or are prices now pushing rents? HMMM. Since this market is moving so fast and prices are increasing monthly, I am seeing rental prices start to increase, but not quite at the pace of housing. So here are 3 samples below of buy vs. rent:
1,600 Sq foot 3+ 2 house in Encino CA – Average Purchase Price $1,000,000.00 +/- Rental Payment $4,200.00 +/- Payment on house with 10% down = +/- $5,400.00 // Principal paid per month year 1 – $1,379 = $4,020.00 net cost
1,300 Sq foot 3+ 2 condo in Sherman Oaks CA – Average Purchase Price $585,000.00 +/- Rental Payment $3,000 +/- Payment on house with 10% down = +/- $3,400.00 // Principal paid per month year 1 – $897 = $2,503.00 net cost
1,000 Sq foot 2+ 2 condo in Valencia CA – Average Purchase Price $430,000.00 +/- Rental Payment $2,500 +/- Payment on house with 10% down = +/- $2,450.00 // Principal paid per month year 1 – $659 = $1,791.00 net cost
1,500 Sq foot 3+ 2 house in Valencia CA – Average Purchase Price $700,000.00 +/- Rental Payment $3,600.00 +/- Payment on house with 10% down = +/- $3,660.00 // Principal paid per month year 1 – $1,073 = $2,587.00 net cost
Renting does not save you in any of the above situations with 10% down. The only one it is close on is the 10% down $1 Mil house in Encino, so why are people renting if they are not renting from me? The Kardashians don’t rent so why should you? Even if I ran these with 3.5 or 5% down, it still benefits you to buy. Even if you buy and you have to move because you get your dream job in Alaska as a pipe fitter, then you could rent and STILL MAKE MONEY!
Rates started to increase slightly today. Ehh, it’s one day, but I think the concerns are that people are spending a lot! Have you noticed that prices on everything are more expensive? It’s not just houses.
30 year conventional loans are back to the low 3’s and high 2’s
30 year Government Loans (FHA / VA) are in the mid to high 2’s
High Balance Loans $548,250.00-822,375.00 are in the low to mid 3’s
Jumbo loans above $822,375.00 are in the low to mid 3’s. We can do mid 3’s with as little as 10% down. We can do 1 year findings on these too!
5/1, 7/1, 10/1 Arms are in the low to mid 2’s!
Bank statement loans – They are available with 10% down again! High 3’s to low 5’s depending on down and credit score.
Stated income loans – I have one bank with 30% down, but everything else has to be perfect! Also in the mid 4’s.
0 down loans are in the low 3’s – 660 credit score min right now! Mid 3’s for the most part
Private Money lenders – hard Money Loans – 35% down!
First time Buyers Tax Credits are back, but on a very limited basis! 20% Tax credit on the interest they pay! Fabulous program!
Bridge Loans – are typically 5.99% with limited fees – But they get you where you need to go!
Interest rates are subject to change without notice! Above are LA County Loan Limits.
Are you considering owning or running a rental? Trends indicate all is well in the world of investment properties and that things will stay that way for the foreseeable future. If you’re ready for your piece of the pie, there are a few resources to keep at your fingertips.
Choose a Location Wisely
Thanks to technology, it’s easier than ever to manage investment properties from afar. That means, as you select your rental location can be based on the market and the property itself, instead of mere proximity. Here are a few tips for finding an inspired property to call your own.
The Top 11 Property Features to Attract Tenants
Six Ways To Identify The Best Real Estate Investment Markets
Examine Financial Aspects
No one wants to lose money on their investment or, even worse, overextend themselves. Calculating where you stand financially, how much you want to invest, and how much you stand to earn is an important part of the planning process.
Real Estate 101: Financing an Investment Property
How Much Should I Charge for Rent: A Guide to Rental Rates
Rights, Responsibilities, and Regulations
You may not be a lawyer, but you’ll need to become familiar with local rental regulations in order to manage your property effectively and within the law.
What Are Landlords Responsible For?
Cities Find New Ways to Regulate Vacation Home Rentals
Professional Services and Associates
You can’t do it all alone. There are a handful of professionals you’ll want -- and need -- on your team if you want your investment to flourish.
Should I Hire a Professional Property Manager?
When Should You Hire a Real Estate Attorney?
Tools of the Trade
There’s no need to reinvent the wheel. Proven best practices, time-saving apps, and easy-to-use templates from reliable sources allow you to work smarter, not harder.
Basic Rental Agreement (Free Sample)
The Best Property Management Apps
Successful real estate investors know that building a solid business model starts with the basics.
How to Create a Real Estate-Investment Business Plan: A Guide for New Investors
Click Here to Learn About Registering as an LLC
The world of investment properties is hot right now! If you’re ready for your piece of the pie, select your location wisely and prepare your finances thoughtfully. Get familiar with legalities, add some experienced pros to your team, and plug some tools into your toolkit. Before you know it, you’ll be ready for the profits to start rolling in!
If you’re looking for an inspired investment property, reach out to Dawn Peterson today! Call 818-943-1177
The Gift of Grace
After living under the weight of the pandemic for more than a year and listening every day to the bad news around us, why not look for ways to change the conversation by doing something nice and unexpected for someone else.
Here are some creative ideas:
- Pay it forward. The next time you are in a drive-through line to pick up food, pay the bill for the car behind you. This unexpected act of kindness is sure to bring a smile.
- Become a tutor. Many students find virtual classrooms to be challenging and could use some extra help. And you don't need to be an expert! Even with students re-entering the classroom, your local school may be in need of assistance.
- Look to your neighborhood. Every neighborhood has someone who could use help. From single parents to seniors, simple everyday chores could be a real chore for them. It might mean mowing the grass or offering to go shopping to pick up items for them while you are out. And if you're up for it, consider offering free babysitting services for an hour or two so parents can take a well-deserved break.
- Make an elderly friend. Call a local nursing home or assisted care facility and ask if they have a friendship program that connects you with a resident that could use a pen pal. Get your kids to create a card with a picture to go with a short letter they write themselves. When it's appropriate after the pandemic, consider regular, in-person visits to say hi to your new pen pals.
- Do a good deed daily. This is a great way to create the habit of undertaking daily, random acts of kindness. By doing a good deed every day, your vision will change and you'll see more opportunities to help. Opening a door, picking up trash or helping a single parent who is juggling different tasks are all great examples of this.
- Bring back forgiveness. When someone makes a mistake, provide an environment to accept an apology and leave room to genuinely forgive. Continue to be a role model in displaying the act of forgiveness.
Giving the gift of grace is not only rewarding for you, but is also contagious to everyone around you.
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