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ANSI: I'll Tell You What You Can Do with This ANSI Stuff!

by Richard Hagar, SRA

One would think that we've had enough of this standardization stuff…but no!

With Fannie Mae's recent announcement, ANSI has become the latest buzzword and blog complaint in the appraisal world. Starting on April 1^st (April Fool's Day…) FNMA wants all appraisers to use the ANSI method when measuring homes and determining square footage. This isn't new, it's been around for a long time. ANSI stands for the American National Standards Institute and the information on their website explains what I'm talking about:

THE AMERICAN NATIONAL STANDARDS INSTITUTE OVERSEES STANDARDS AND CONFORMITY ASSESSMENT ACTIVITIES IN THE UNITED STATES.

ANSI's mission is to enhance both the global competitiveness of U.S. business and the U.S. quality of life by promoting and facilitating voluntary consensus standards and conformity assessment systems and safeguarding their integrity.

ANSI facilitates the development of American National Standards (ANS) by accrediting the procedures of standards developing organizations and approving their documents as American National Standards (ANS). This process serves and protects the public interest since standards developers accredited by ANSI–and the ANS they develop–must meet the Institute's requirements for openness, balance, consensus, and due process and adhere to ANSI's neutral oversight, assuring that all interested parties have an opportunity to participate in a standard's development.

This organization has been around since 1918 with the goal of making things produced by different companies, work better; and they do this by creating voluntary standards.  I can hear a few appraisers out there now stating, "Yea, yea I'm an appraiser why do I care about how they make the nut and bolt threads of the World work together regardless of who makes them? Besides I'm an American, I hate some agency telling me what to do."  I understand their point but read on.

When I was studying to become an architect, I saw all sorts of different ways to display the exterior walls of a house. Some plans indicated measurements from the living side of the exterior wall, others from the middle of the wall, some were measuring from the exterior surface of the wall and plenty were measuring from the foundation wall. Depending on the method used and starting point for the measurement, a house could vary by hundreds of square feet. And depending on the method used by the architect, builders might not order enough, or too much, paint, sheetrock, carpet, cabinets, etc.  The variables impacted costs as well as what a buyer paid for a house. In most new homes that I've appraised, what the buyers believed they were buying and the size they ended up with, were completely different (which triggered complaints and lawsuits). A standard can help reduce these problems.

Staircases
Let's start with stairs. Do they count as the upper floor, the main floor, the basement or should they even be counted at all?

I first ran across this problem in a house that had stairs that were 6 to 8 feet wide, fully open on the sides, and at every 5 feet there was an 8 by 8 landing with furniture. You could walk under the floating stairs and every landing was used as living area. Would this space count as a second floor?  Some sort of middle floor? Or the main floor? Confusing, isn't it!

Well, a second story is typically considered an area above the main floor. So, what's the standard? The stairs and landings were above the main level and functioned as a second level. The stairs were counted as part of the upper floor. Imagine how different appraisers in different parts of the continent would describe these areas; this is where a national standard would help.

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Basements
Oh boy, let me tell you about Prescott Arizona and basements. The county assessor typically indicates the total square footage (SF) for the entire house, including the basement and entire above grade living areas as one lump-sum number. I've even seen them include detached buildings and casitas (ADUs) in the SF of the main house.

As an example: The county indicated that a comparable had 2,000 SF. However, upon driving by the sale it was easy to see the house was not that large. The Assessor's website had a floor plan (if appraisers would take the time to look at it) that clearly indicated that there was 1,000 SF above grade and 1,000 SF below grade, in a windowless, unfinished "basement" but they included all of the square footage in a lump-sum total.

Looking at what others were showing on their appraisals, five appraisers indicated that the house had at least 2,000 SF above grade, some indicated nothing in the basement, and two of the appraisers indicated 2,000 SF up and another 1,000 SF in the basement. So, 2 of the appraisals indicated that the comparable had 3,000 SF, while 3 of them indicated no basement and included the unfinished SF above grade. Needless to say, all five had incorrect square footage (by 33%), incorrect SF adjustments and adjusted sales prices. Their value conclusions were more like wild guesses than reality, based on facts. When compared to the competent appraiser, who was indicating the correct square footage, the 5 other appraisers look like overpaid hacks. Not the best way to present yourself to your client…unless you want future appraisal orders and higher fees.

In talking to a couple of the appraisers, it was clear they didn't understand that, for "FNMA appraisals" below grade areas need to be separated from above grade living areas. Here's where ANSI brings clarity to our process. The standard clearly indicates that if any area of a floor is below grade (the dirt line), no matter how small, then that floor is classified as being below grade. The ANSI book has several drawings that clearly show how this works. The whole point here is for all appraisers to get on the same page when describing above and below grade square footage and the ANSI standard helps. Now, how above and below grade square footage impacts value or should be adjusted…well that's a whole other class on the topic of adjustments.

Assessor's Square Feet
Here's something I hear all of the time: "Why not use what the assessor indicates at least that way the subject and comparables are using the same system?" Well yes, no and maybe. Not even county tax assessors have a single uniform method for obtaining square footage. Some tax departments use:

• SF supplied by the builder on a permit application form,
• SF supplied by the floor plan when it was submitted for permits,
• SF based on aerial photographs (which usually includes the overhanging roof line making the house larger than reality).
• SF taken from the homeowner when they turn in a professional appraisal as part of a tax dispute.
• Physical measurements by a tax assessor.
• And, In Montana (as well as a few other states) many of the homes are built without building permits. The assessor, once they determine that a house even exists, stands on the nearest public road and uses a laser to pinpoint the corners and estimate the SF.  There's no opportunity for them to determine the space of large-vaulted areas in an entryway.

For the most part there's not even a standardized method within the same assessor's department.

Complicating matters further are the builders. Years ago, when I worked for a builder and submitted plans for a building permit, the proposed square footage was listed on the plan, which was hopefully, accurately, conveyed to the tax assessor. However, if during construction, a site problem developed preventing the house from being as big as planned, or if a buyer wanted the house to bump out 4 here or 3 feet there, or even change the plan from a ranch to a home with a basement, we didn't go back and get a new permit; we simply made changes on the spot. In my 30 years of appraising, actual measurements of a house equaled what the county assessor showed maybe…4 times. In other words, the square footage indicated in the tax records are off 99.9% of the time; if possible, this is not something you want to rely upon (Welcome to Seattle, Prescott, and Montana).  Why would anyone want to rely on something that was widely variable and known to be inaccurate?

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Solutions Squared or…
In the sales comparison approach, if an appraiser uses incorrect square footage supplied by the assessor for the subject and each of the three comparables, then their appraisals are going to be off by at least a factor of 4. You have errors piled on top of errors. At least when the appraiser accurately measures the subject and still uses the questionable SF of the comparables, the error factor is reduced by at least 25%. And if both the subject's and a comparable have the correct square footage then the error factor is reduced by another 25-33%, all of which makes the appraisal more accurate (that's the goal). All of this comes about due to more people using the same standard.

If an appraiser uses incorrect square footage for the subject which was supplied by an error prone tax assessor, then the cost approach is going to be off. This might explain why some appraisers skip the cost approach by claiming it's not credible. Or maybe it's because your square footage information is flawed. Solution: measure the house using the ANSI standard which increases the accuracy of the cost approach and credibility of your work.

Rounding Madness
When measuring a house, some appraisers round to the nearest foot, others 2 feet, while the more competent appraisers round to the nearest inch. Yes…inch! If you are in the field and start off by rounding to the nearest foot that means some, if not all, of your measurements are going to be off by 6 inches. Even for a rectangle if you round by 6 feet on every side you can be off by a dozen square feet or more and if the house has multiple sides. You can be off by a hundred or more square feet. Now what happens when drawing it on the CAD program and walls don't align, do you "round" again? So, rounding multiplied by more rounding? What's next more rounding on adjustments and the final value. Wow! Just how much slop is being introduced in your reports? That's not a good way to provide a service to a client.

When we measure the subject, we measure to the inch and if there's any rounding that's done, back in the office and we'd adjust the wall that has the least impact on the total square footage. I know it sounds nit-picky but in our fuzzy information World, trying to be accurate is one of the things we have some control over. Besides, if a reviewer compares my work to someone else's, at least I can convey the fact that I tried to be accurate vs some other appraiser who rounded every measurement, adjustment and value conclusion.  Being as accurate as possible makes any appraiser look better and worthy of higher fees (the goal right…).

What You Can do With This Standard
Every competent appraiser I know has been using the ANSI (or similar) standard for 20+ years. Currently, I have two trainees and I've taught them the standard. So, for our office, this isn't going to impact us one bit, and hopefully it won't impact yours.

Yes, some appraisers are going to moan and complain about the standard. Many old dinosaurs are going to complain and state that they aren't going to change their ways. OK don't.

I'll tell you what you can do with this standard: Follow it and do it right…or don't and your appraisals will start to fail in the review process. Be competent and get paid more or…don't. How much you are paid is up to you. We do it right and receive some of the highest fees in the area (Washington and Arizona).

The Solution: More Education!
There are going to be numerous classes put out this year (one by John Dingman) teaching the ANSI standard. Even if this "stuff" is old news to you, I'd still recommend taking the class, comply with the new requirements and get paid more…or not. Welcome to the American way of free enterprise and competition.

Trying to keep you safe and profitable out there!

About the Author
Richard Hagar, SRA, is an educator, author and owner of a busy appraisal office in the state of Washington. Hagar now offers his legendary adjustments course for CE credit in over 40 states throughOREPEducation.org. The new 7-hour online CE course How to Support and Prove Your Adjustments  shows appraisers proven methods for supporting adjustments. Learn how to improve the quality of your reports and defend your adjustments! OREP insureds save on this approved coursework. Sign up today atwww.OREPEducation.org.

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