I received a call recently from a Portland area real estate agent asking how a basement kitchen, installed by the homeowner without going through the usual building permit process, will affect the appraisal of her pending sale. Basement kitchens are typical around Portland, are attractive to many homebuyers, and often are not “permitted.” Issues with unpermitted areas are complicated, are much more of an issue now than in the past, and can come down to the discretion of the lender or the appraiser. However, remember that the appraiser is just reporting the facts to the lender and analyzing the marketability of those facts. The lender is concerned with liability of an unsafe improvement and the value of the collateral. Here are five factors to remember with regard to a basement kitchen.
A basement kitchen that is not permitted could be a hazard due to fire or ventilation and therefor a liability to the lender. This is usually only a factor when there is a freestanding or built-in stove or oven. Basement kitchen sinks and refrigerators typically are not seen by lenders as risky. If a range or oven is identified as not permitted or unsafe, the lender will typically condition it to be brought up to code (or outright removal) prior to funding of the loan. The appraiser will usually be asked to return and certify that the work is completed.
The appraiser is not an expert in building code. However, the appraiser should understand local building codes enough to recognize visible issues, should research codes with the appropriate authorities, and should communicate results to the client. Basement kitchens usually require electrical, mechanical, or plumbing permits that are in excess of the normal building permit to finish a basement. Asking the right questions is important.
It is not the appraiser’s responsibility to report code violations to authorities. Appraisers have a strict ethical responsibility of confidentiality. When querying local building officials (rather than saying, “This property has a basement kitchen”), the appraiser might ask, “What permits would be necessary to install a kitchen in the basement of the subject?”
The appraiser should take plenty of pictures. A simple appraiser photograph might put a nervous lender at rest because the photo shows that there is no stove or range.
Most lenders or appraisal management companies have specific instructions for an appraiser to follow when dealing with unpermitted areas or basement kitchens. An appraiser should alert the client about issues like a basement kitchen prior to delivery of the appraisal, to make sure that lender protocol is followed.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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When getting an appraisal, homeowners are often uncertain about what areas of their home would be considered finished area by the appraiser. Recently, I posted a blog and video clarifying what areas an appraiser would consider as GLA (Gross Living Area) and what would be considered basement. To expand on that topic, I decided to clarify the difference between finished and unfinished areas of the home.
In Oregon (and many other states), residential appraisers typically follow ANSI standards when measuring a home. ANSI says that finished area (often referred to by appraisers as GLA) includes area that:
1. Is “…suitable for year-round use.”
2. Is “…similar to the rest of the house” in terms of its level of finish.
3. Is “…connected to the main body of the house by other finished areas such as hallways or stairways.”
4. Is measured from the “…exterior finished surface of the outside walls” (except on condominiums and attached homes).
5. Is a minimum of five feet in ceiling height but, “At least one-half of finished square footage must be 7’-0” where ceiling slopes.”
6. Does not include openings between levels. A two-story foyer would not be included in the measurement of both levels, but the stairway would be included in both levels. The following Portland Home Sketch shows that “Open to Below” has been removed from the area of the Second Floor (only living area is highlighted yellow on the sketch).
These measurement standards mean that a finished sun porch or a finished garage may not meet the standard for finished area by an appraiser. Also a detached finished area, like a mother-in-law apartment or guest house, would not be included in finished area. This does not mean that these areas do not have value. It just means that these areas should be compared differently by the appraiser to determine what the appropriate value is.
Keeping these home measurement standards in mind, an appraiser must also be aware of local customs and imperfect data when estimating the size of a home’s living area. For example, if an appraiser follows ANSI standards to measure the subject home, but the appraiser’s comparable sales are based on a local county assessor data that follows a different standard, then the appraiser would end up with a flawed comparison and possibly an incorrect value opinion.
If you find this information interesting or useful please subscribe to my blog. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, OR area residential real estate appraisal services for any reason, please contact us. We will do everything possible to assist you.
A question appraisers are commonly asked is, “Why wasn’t my home’s entire finished area included in the appraisal report?” The answer is that often all of the area was considered, but appraisers regard finished areas partly below grade as basement, even if the area has daylight windows and is mostly above grade.
In the following two photos, you can see an example of a daylight basement that is mostly above grade on the rear of the improvement and mostly below grade on the front. The blue line in the photo represents the approximate grade for the property.
In the Portland area, properties like split-levels (two story bi levels), tri levels, and daylight ranches often have a large portion of finished, partly above grade basement area. The above grade finished area is usually considered as gross livable area (GLA) and is more prominently displayed in the appraisal report. The rest is considered as basement and is more difficult to find in the appraisal report.
The reason for separation of above and below grade area is to ensure that appraisers compare apples to apples. Lumping basement and above grade area together might lead to accurate value estimates in some cases but, for other properties lumping areas together could lead to an inaccurate comparison and value conclusion. Consequently, if it looks like the appraiser measured your home as too small, first check to see if part of your living area is compared in the basement area of the report with other properties that have similar basements. If not, there is usually a home sketch in the report with appraiser measurements that can be used for verification.