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The way home appraisals and valuation services are conducted is changing. The introduction and wide acceptance of desktop and hybrid appraisals during the COVID-19 pandemic have led GSEs Fannie and Freddie to update and standardize the methods used to measure, calculate, and report floor plan details used in these appraisals.
According to Fannie Mae, “Appraisers will be required to use the Square Footage-Method for Calculating: ANSI® Z765-2021 (American National Standards Institute®) Measuring Standard for measuring, calculating, and reporting gross living area (GLA) and non-GLA areas of subject properties for appraisals requiring interior and exterior inspections with effective dates of April 1, 2022, or later.”
The two major GSE's adoption of the ANSI standard for measuring floor plans is intended to:
- Create cohesion among market participants
- Provide a professional, defensible, and accessible method for appraisers to determine property value
- Facilitate transparent and repeatable outcomes for appraisal report users
In this second post of our blog series on alternative valuation options, we’ll highlight some key provisions of the ANSI measuring standard, discuss the role of technology in desktop and hybrid appraisals, and explore challenges related to the new floor plan requirements.
Key Features of the ANSI Standard for Calculating Square Footage
Here are some features highlighted by Fannie Mae for appraisers using the ANSI measuring standard:
- Measurements should be taken to the nearest inch or tenth of a foot; final square footage should be reported to the nearest whole square foot.
- Staircases should be included in the GLA of the floor from which they descend.
- A basement is defined as any space that is partially or completely below grade.
- The GLA calculation should not include openings to the floor below, as in the case of two-story foyers.
- Finished areas must have a minimum ceiling height of seven feet. In a room with a sloping ceiling, at least 50% of the finished square footage of the room must have a ceiling height of at least seven feet and no portion of the finished area that has a ceiling height of fewer than five feet can be included in the GLA.
- To conform with the ANSI Standard, if a house has a finished area that does not have a ceiling height of seven feet for 50% of the finished area, the appraiser may put this area on a separate line in the Sales Comparison Grid with the appropriate market adjustment. The report will be ANSI-compliant and also acknowledge the contributing value of the non-GLA square footage.
- Note that Fannie Mae has clarified that the desktop appraisal does not have to meet the Square Footage Method for Calculating ANSI standards. However, it is encouraged when possible.
The Role of Technology in Desktop and Hybrid Appraisals
The recent rise of new smartphone technology, software, and apps that enable appraisers to measure homes, generate floor plans, and determine GLA has allowed the industry to readily adopt hybrid and desktop appraisals.
Fannie Mae will require a floor plan for their desktop appraisals. The lending giant sees technology playing a large role in making these floor plans accessible.
According to Fannie, “Since appraisers are not inspecting the property personally for the desktop appraisal, we anticipate they will commonly receive the floor plan from a third party, so it makes sense that all parties (including the appraiser) would be using the same standards of measurement. ANSI is a standard that technologies can build to, other parties (such as real estate agents) can anticipate, and appraisers can create or consume with confidence.”
Challenges with the New Floor Plan Requirements
Unfortunately, there are some major challenges with Fannie’s new floor plan requirements. The biggest hurdle is that the floor plan for most homes is not readily available. The GSE’s position on this is that the floor plan can be obtained from the owner, borrower, or any other person through a smartphone app.
The apps themselves can ensure some independence for appraisers and their geofencing capabilities are improving. However, Fannie Mae is also requiring that the floor plan complies with ANSI standardization, and not every app is set up to do that.
There is also an added cost factor—the apps themselves are free but the fee to generate the floorplan can run anywhere from $15.00 to $30.00. In addition, there may be additional costs to obtain all required elements, including photos, floorplans, sketches with proper dimensions, and GLA calculations.
In addition, not all appraisers are going to be comfortable requesting floorplans from homeowners or borrowers because they are not disinterested parties.
There is also a learning curve to using these apps properly. Many industry players are coming up with solutions like adding a full inspection service that would generate the floor plan and provide additional photosets (Property Inspection Reports). But this would make their valuation more of a hybrid than a true desktop.
Appraisal software companies and others are working diligently to find the best solutions in order to comply with the floor plan requests. I personally think it might be slow getting out of the gate.
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