What are the ANSI Measurement Standards and why are they important in the Appraisal Process?Mar 03, 2021
Did you know there are measurement standards when measuring the square footage of a home? Measuring a home is more than just calculating the square footage.
In April, 1996 the American National Standards Institute (ANSI) adopted a standard for measuring single-family residential buildings. American National Standard Z765-1996 was developed through a process of consensus among a wide variety of participants. These included the American Institute of Architects, the Appraisal Foundation, the Building Owners and Managers Association, the Manufactured Housing Institute, the National Association of Realtors, Fannie Mae, Freddie Mac, HUD and others.
The ANSI standards are not law, only a voluntary guide, and are subject to periodic review and revision . Most appraisers use ANSI Measurement Standards when measuring the size of the home as part of the appraisal process. Anyone using the ANSI Measurement Standards must apply them as a whole and not just use the parts they might agree with.
Here are a few of the ANSI Measurement Standards:
- Square footage calculations are based on the exterior dimensions of the building.
- Stairs are included on every level they serve.
- "Open to Below" spaces are not counted.
- Finished floor areas are above grade only. (Basements are not included in the finished area square footage)
- Attics, lofts and low level ceilings must be at least 7 feet high, and at least 6 feet 4 inches under beams, ducts and other obstructions.
- There is no height restriction under stairs.
- If a room has a sloped ceiling, at least one-half of the finished floor area must have a ceiling height of at least 7 feet.
- Lofts and finished attics must be accessible by a conventional stairway to be counted. If you can only reach the loft by climbing a ladder it’s not part of the finished floor area.
You can see by looking at a few of the ANSI Measurement Standards that it would be impossible to calculate the square footage of a home using the ANSI Measurement Standards without going inside the home.
Most appraisers do use ANSI Measurement Standards to determine the size of the home during the appraisal process while most real estate agents rely on public records for home size when determining a listing price for a client. Can you see a potential problem here? Home size information found in public records probably came from a source that never even entered the home.
Lets look at this scenario:
A house is under contract for $250,000. It was marketed as a 2,000 sf house. The size was listed in public records. The contract is now out of the option period. The inspection has been done. Repairs have been negotiated. Financing has been secured and now it is time for the appraisal. The first thing the appraiser will do is measure the home. The appraiser uses ANSI Measurement Standards and finds the home is only 1,800 square feet. (There was an "open to below" area and a loft area with access only by ladder.) Now there might be a potential problem with the home appraising for the contracted price. The house had a contracted price of $125/sf for 2,000 sf but now according to the appraiser the house is only 1,800. At $125/sf that is a difference of $25,000. Is the buyer going to overpay for the house? What will the lender do?
Now, lets look at the opposite scenario:
The house is under contract for $250,000 and was marketed as a 2,000 sf house. The appraiser determines the size to be 2,200 sf. At $125/sf the seller and the listing agent would be leaving $25,000 on the table. Would you want to work with this listing agent?
Here are some key points to remember:
- The purpose of the appraisal is to ensure that the property value is adequate for the loan amount.
- The buyer, the lender, and the Appraisal Management Company (AMC) are the only parties who receive a copy of the appraisal.
So should the appraiser find the home larger than the marketed size the seller will never know this information.
The appraiser cannot discuss the appraisal with anyone other than the AMC.
So, what can be done to avoid either of these scenarios? All of this can be avoided by having a pre-listing measurement done. Sellers will feel confident about the sales process knowing the accurate size of the home at the beginning of the process rather than waiting until the end.
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