Atlanta Real Estate Appraisal Process – Useful information regarding the appraisal process and home valuation – and three common problem issues that trip many owners and agents.
Calculating Square Footage – the wrong way:
Agents are not responsible to list the actual living square footage of a home, but when they do report it they are expected to report it accurately – and in GA they must list the source of the square footage – builder, tax records, appraisal. Agents often list square footage incorrectly, which causes confusion between the parties, can result in contractual problems, and sometimes the home will not to appraise for the agreed upon purchase price. The largest error I see is when agents list the square footage of a house in the MLS is that they DO NOT distinguish ‘below grade’ finished space from ‘above grade’ finished space. Commonly agents include the square footage of a finished basement with the above grade finished space in the home to arrive at a grand total that is wrong. So a 3000 sq ft home with a 2000 sq ft finished basement is portrayed as a 5000 sq ft home – wrong! Appraisers do not include the below grade finished square footage (finished basement area) in the homes square footage figure. They list the basement separately and will give an allowance for the below grade finished space but it is not calculated with the same cost per square foot factor as above grade space. When an appraiser comes out the square footage may be listed as significantly lower than what an agent puts in the MLS listing description. An appraiser and lender will use different and much more detailed methods to arrive at living space square footage – including figures for above grade and below grade finished living space. There are accepted protocols in “how to measure, and what to include or exclude” in taking proper measurements of the living area square footage of residential homes.
The best way to measure a home is to follow the same methods appraisers use. A great resource for anyone, homeowner or agent who is interested in better understanding how appraisers measure a home can be viewed on the North Carolina Real Estate Commission web site: CLICK HERE
Problems with bedrooms – is it a bedroom – or not
What is allowed to be called a bedroom – what are the requirements for a bedroom? Many folks may think a closet is the main requirement – and that seems obvious – but it’s not necessarily so. Agents have to be careful to apply reasonableness and locally accepted standards of practice when listing a homes bedroom size, and refrain from being too liberal about defining bedroom counts when trying to show the home in its best possible light.
There is some leeway here but along with common sense, there are actually a few standard acceptability practices appraisers use, and some local municipal safety/occupancy codes to consider when designating or even deciding to use a room as a bedroom.
- Determining what is and is not a bedroom has to be considered in view of the age of the home and how similar homes are viewed in the same local area. Metro Atlanta has plenty of older 1920’s to 1950’s homes that were specifically designed with a flex room that could either be a bedroom or a den – some have closets and some don’t. So does a ‘bedroom’ in a 1940s home have to have a closet – not necessarily because many homes of that circa did not. Is it functionally obsolescent by today’s standards – sure, but that is a buyer acceptance item and it would be appropriate to list that as either a 3 bedroom home, or a two bedroom home with a den, the latter being the generally less desirable way to position the property in the MLS.
- A listing agent or seller may want to include a bedroom located in a finished basement in the homes total bedroom count, but a basement bedroom should not be included in the total count, but should be listed as an optional extra bedroom possibility if needed, which is the way an appraiser will see it – if the space has adequate and safe permanently installed HVAC, lighting, and fire escape. The buyer can certainly use that basement space as a bedroom, but it should not be included in the homes total bedroom count in the MLS.
- Occupancy codes, Building Codes and Life Safety Code issues are at play throughout the home, especially with regard to defining bedrooms, bathrooms, habitable rooms, and how these rooms are affected by the presence or lack of fuel burning appliances, natural light, and safe egress in the event of a fire. Things like minimum ceiling height, minimum room dimensions, and having permanently installed direct or indirect heating that can maintain a certain temperature in the Atlanta area in winter can dictate what is allowed to be counted as square footage and even if a room (or home) is allowed to be considered as habitable for sleeping or living. For example, bedrooms need a window with a specific open able area size and there is a max height limit from floor to the window sill to allow occupants to use the window as an escape in case of fire. So even an above grade room with no window, or a basement room with a small 14″x 36″ casement windows 6 feet off the floor can be used as a bedroom by a buyer, but it will certainly not be condoned as a bedroom by the Fire Marshall or County Building Official, and no such room should be counted in the MLS bedroom description. Likewise, fuel burning appliances like a furnace or water heater are not allowed to be located in any bath room or room used for sleeping, or in a closet in one of these rooms with a door that only opens into the bathroom or sleeping room.
Price Per Square Foot – a virtually useless measure in valuing residential real estate
A lot of buyers like to ask about the cost of new construction homes or compare existing homes referencing a price per square foot PPSF figure, but due to extreme variability in so many factors, some of which are not usually known or considered by people looking for PPSF figures, this is not a reliable way to compare and value homes. You cannot look at online cost data and cost per square foot data on the ‘big portals’ and make any financially sound conclusions. Comparing very equal comps is imperative in any valuation, and without knowing how or having access to comps to confirm they are in fact comps, PPSF is all but useless. Let’s use two 3800 sq ft homes in Cobb County. Does one home have significantly better quality (and more costly) interior detail finish work? Is one 3800 sq ft home a standard brick front and HardiPlank home with vinyl trim and carpet inside – more or less a ‘production builder box’ out in Kennesaw, while the other is a custom built home with tons of corner transitions, opulent heavy built-up real wood casings, inlaid travertine and real nail down hardwood floors, and more expensive 4 sides stone and brick veneers, with a slate roof, and on a prime river or golf course lot in Vinings or East Cobb? One might be worth $118 sq ft and the other $275 sq ft – PPSF is not at all useful unless all the variables are known to be the same or very comparable, and even then it is rough at best!
Feel free to contact me if you have questions or if I can be of service – 678-585-9691