living area | Andrew Robb RE/MAX Fine Properties living area | Andrew Robb RE/MAX Fine Properties

Understanding Appraisal & Calculating Living Space

phoenix home appraisal

Appraisals are an essential part of the loan process. They serve to establish an independent opinion of value the buyer’s lender will use in approving the loan during underwriting. Keep in mind, the appraiser is randomly assigned by the lender to perform the appraisal so is impartial to all parties.

The value of a property is impacted by condition and it is important to understand what many adjustments are made to reconcile value: living area square footage, lot size, age of property, quality of construction, pool and/or spa, garage spaces, renovations and/or improvements, lot view and/or privacy, fireplace, yard hardscape, etc.

Despite all the factors that affect home values, differences in square footage account for 2/3rd of the variation in sales prices of single-family residences. Living area is the total area of finished above grade residential space. This is calculated by measuring the outside perimeter of the structure and includes only finished, livable above grade space.

How does an appraiser determine square footage?

  • Unfinished areas above grade are not included
  • Openings to floor below are not included
  • Finished areas connected by hallways and staircases are included, if above grade
  • Finished areas not connected are not included
  • Garages, chimneys, bay windows and other areas that extend beyond exterior finish without flooring are not included
  • Finished areas must have ceiling height of 7′ (except under beams and ducts where height may be 6’4″)

What is considered finished living area?

  • Wall and ceiling finishes include painted drywall, wallpaper covered drywall and wood paneling
  • Floor finish includes carpeting, vinyl sheeting, tile, hardwood flooring and does not include bare or painted concrete
  • Exterior finish include masonry or masonry veneer, wood, aluminum or vinyl siding

The room count and gross living area should be similar for the subject property and all comparables. For example, a four bedroom comparable sale generally is not acceptable to support value of a two bedroom subject property. The appraiser must address large differences between the subject property and the comparable sales, since they raise doubts about the validity of the comparables as good indicators of value.

Adjustments for differences in the number of bathrooms are made before adjusting for square footage differences. Any adjustments should be based on market reaction, rather than on cost. For example, in some neighborhoods, buyers may consider two bathrooms typical and the value of a third bathroom may be very small in relation to its cost. However, in other neighborhoods, buyers may expect three bathrooms and a house without a third bathroom may be penalized in the market even more than the cost of an additional bathroom.

The appraiser must be consistent when they calculate finished above grade room count and square footage of gross living area above grade. For detached homes, the appraiser should use the exterior building dimensions per floor to calculate a property’s above grade gross living area. For condos and attached homes, the appraiser should use interior perimeter unit dimensions to calculate gross living area.

Only finished above grade areas should be used – garages and basements should not be included. A level is below grade if any portion of it is below grade regardless of the quality of finish. Thus a walkout 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 in the sales comparison analysis.

Andrew Robb - RE/MAX Fine Properties, 21020 N Pima Rd, Scottsdale AZ 85255