In the ever-evolving world of real estate appraisals, consistency and accuracy are paramount, especially when determining the value of residential properties. Historically, appraisers have faced challenges in aligning on a standardized method for measuring and calculating square footage. These inconsistencies could impact valuations and create confusion across different market participants. With the introduction of the ANSI® Z765-2021 standard, however, the process for determining square footage, specifically Gross Living Area (GLA), has been streamlined, offering clear guidelines for appraisers, lenders, and other industry professionals.
The American National Standards Institute (ANSI®) Z765-2021 is a newly adopted appraisal standard for measuring, calculating, and reporting the square footage of residential real estate. Effective from April 1, 2022, this standard is required for appraisals that necessitate interior and exterior inspections and involve loans sold to Fannie Mae. The new guidelines focus on ensuring consistency and transparency in calculating GLA and non-GLA areas.
One of the most important aspects of this shift is the requirement for computer-generated floor plans and footprint sketches. These plans must clearly indicate all necessary dimensions to calculate both above-grade and below-grade square footage, including specific areas such as garages. Furthermore, the calculations should be demonstrated in a way that leaves no room for ambiguity, ensuring that anyone reviewing the appraisal can follow the steps taken to derive the square footage.
Why This Matters: The Impact on Residential Valuations
Valuations of residential properties are intrinsically tied to GLA, as this unit of measure directly influences a property’s market value. Inaccurate or inconsistent square footage can lead to misleading appraisals and misinformed decisions. By mandating the use of the ANSI® Z765-2021 standard, the appraisal community can align on a professional and defensible method for calculating square footage, benefiting not just the appraisers but all parties involved, from lenders to buyers.
The standard provides several key benefits:
Alignment Across Market Participants: With a uniform approach to measuring square footage, everyone involved in the appraisal and lending process will be speaking the same language, minimizing confusion and errors.
Defensible Methodology for Appraisers: Appraisers can now rely on a recognized standard, providing a clear and defensible approach to calculations, should questions or challenges arise.
Transparency and Repeatability: By adhering to the ANSI standard, appraisers ensure that their results are transparent and can be replicated, instilling confidence in the accuracy of their work.
Key Considerations for Appraisers Under ANSI® Z765-2021
Appraisers must adhere to several important considerations when applying the ANSI Z765-2021 standard:
Precision in Measurements: All measurements taken for the floor plan or sketch must be reported to the nearest inch or tenth of a foot. The final square footage calculations, however, must be rounded to the nearest whole square foot.
Staircases: Staircases are included in the square footage of the floor from which they descend. This means that appraisers will need to ensure they account for the total area, including stairways, when calculating GLA.
Basement Areas: Fannie Mae mandates that any space that is partially or completely below grade must be reported as basement area. This distinction is crucial for accurate reporting and valuation.
Exclusion of Openings to Below Floors: Openings like two-story foyers are not to be included in the square footage, emphasizing the need for appraisers to account for structural features that do not contribute to usable living space.
Ceiling Height Requirements: Finished areas included in GLA must have a ceiling height of at least 7 feet. In rooms with sloping ceilings, at least 50% of the finished area must meet this height requirement. Any portion of the finished space with a ceiling height of less than 5 feet cannot be included in the GLA.
Separation of Finished Areas: If a house features finished areas with ceilings less than 7 feet for more than half of the room, such as in cape cod-style homes or below-grade spaces, these areas must be reported separately in the Sales Comparison Grid, accompanied by an appropriate market adjustment.
The Challenge of Discrepancies in GLA Reporting
While the ANSI standard will provide clarity moving forward, appraisers may still encounter challenges when reconciling discrepancies in square footage data. GLA figures in local MLS systems or tax assessor records may have been derived using methods other than the ANSI standard, leaving appraisers with the task of adjusting these figures based on their market knowledge and research.
Despite these discrepancies, it’s critical that appraisers adhere to the ANSI standard for their own calculations. This ensures that the final appraisal report reflects the most accurate and defensible square footage measurements, regardless of what may have been reported by other sources.
Exceptions to the ANSI Standard
In certain cases, it may not be possible for an appraiser to fully comply with the ANSI standard. For example, unusual properties like a berm home, where all square footage is located below grade, may be eligible for an exception. In such instances, the appraiser must use the code “GXX001-” in the Additional Features field of the appraisal form and provide a clear explanation as to why compliance with the standard was not feasible. Lenders must confirm that the appraiser has provided a valid justification for any exceptions.
Fannie Mae will closely monitor the use of exceptions to ensure that they are applied correctly and not used inappropriately for homes with typical above-grade square footage. This will help maintain the integrity of the valuation process and prevent circumvention of the standard.
Conclusion: A Step Forward for Consistency in Residential Appraisals
The adoption of the ANSI Z765-2021 standard represents a significant step forward for appraisers and the real estate industry as a whole. By establishing a consistent, transparent, and defensible method for calculating GLA and other key measurements, the standard ensures that appraisals are more reliable and accurate. This not only benefits appraisers but also instills confidence in lenders, buyers, and all other parties involved in real estate transactions.
As the real estate market continues to evolve, the ANSI standard will provide a stable foundation for determining the value of residential properties, reducing the risk of errors and misunderstandings, and ultimately enhancing the overall integrity of the appraisal process.