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[Chip Shots] Accurately Calculating Gross Living Area

[Alvin “Chip” Wagner III, SRA, IFA, SCRP is third generation appraiser from Chicagoland who is a public figure and well respected within the appraisal industry. Along with his business partner, Bob Headrick, they run the firm Headrick-Wagner Appraisal Group [1], which has been providing appraisal, consulting and research services throughout the Chicagoland market for more than 35 years. I met both Chip and Bob through RAC (Relocation Appraisers & Consultants) [2]. When I met Chip in the late 1990’s we both spoke together at a national conference about our appraisal web sites, both among the first in the country. I have learned a lot from Chip and I am thrilled to use his firm’s market stats on my Matrix blog [3] and post his Chip Shots [4] column on Soapbox [5]. Like me, he has an enthusiasm for market analysis.

In this week’s Chip Shots column, Chip shows his annoyance with the “dumbed-down” check box appraisal culture and elaborates on one of critical measures of being good appraiser: having the ability to accurately measure the property he or she is appraising.
…Jonathan Miller

All appraisers have been taught how to calculate Gross Living Area. Often times mistaken with the term “square footage,” Gross Living Area it a very important component in real estate appraising, but is often overlooked and rarely challenged for accuracy.

As defined by the Appraisal Institute’s Dictionary of Real Estate 4th Edition: “Gross Living Area (GLA) – The total area of finished, above-grade residential space excluding unheated areas such as porches and balconies; the standard measure for determining the amount of space in residential properties.”

What has been bothering me in recent weeks? Today it is the appraiser who cannot measure. I have been challenged 5 times in the past week on my measuring ability. I have been right on every appraisal, and I’m getting tired of this trend. This is high school geometry, not physics or engineering. Please understand, I admit to making mistakes and am far from perfect.

I was brought up in this business during a time where we didn’t have APEX, Win-Sketch and the sketching programs out there. I had the graph paper and architectural rulers and drew floorplans and manually calculated my Gross Living Area.

If you are doing residential appraisals only for lenders, you are likely never challenged on how accurate you can measure a home. You go about your business with your tape measure, Roto-wheel, or laser device, while others just may be lazy and use the survey or blueprints and don’t measure anything. Not even a spot-check against that survey.

I specialize in corporate relocation appraisals. This is a niche in the residential appraisal profession when a corporation or the government transfers one of its home-owning employees. Two “relocation” appraisals are averaged together to form a buyout offer to purchase the home of a corporate transferee.

When doing this type of work, the two appraisals have to be within 100 square feet of each other. This is a reasonable request, given one appraiser might round up or down a couple of inches, or measure an open two story foyer differently by a couple of inches.

But more and more often, I am hearing: “you and the other appraiser both measured the subject property, yet you are 250 square feet apart.” (Not on a 5,000 square foot home, but on a 1,900 square foot home, mind you). So, you politely tell the reviewer that you will be happy to take another look at your measurements, and would also like to review the other appraiser’s sketch. This is common-practice, and I get to review a lot of sketches of my peers some good, some bad. A good reviewer will look at both sketches, find where the differences are and try to get to the bottom of it. A lazy or untrained reviewer will simply allow the appraisers to hash it out.

But the other appraiser sketches I have seen recently makes me really embarrassed for my profession. Pulling a tape measure isn’t a requirement for your appraisal license, it is just expected for you to pass high school math!

Some sketches are hand-drawn and have simple multiplication errors. Okay, it happens if you are living in the 1980’s. Use your appraisal software with the sketching programs. If you are using a computer but still hand drawing your sketches and scanning them into your reports, take a few minutes to learn how to use these programs the are great and once you learn to use them, they are accurate 100% of the time.

Other discrepancies might be the other appraiser misses an “overhang” or a cantilever. Although I strive for perfection, I have been known to miss that one from time to time. Nobody is perfect all of the time.

One of the more common problems I see is measuring open areas of two story foyers. Did you know that the first stair tread is considered part of the second floor? Stupid as it sounds, that is one of the most common mistakes an appraiser makes. Approximately half of the appraisers measure by removing the entire open foyer space, the other half measures correctly around the stair treads. Assuming that an average stair width is 3.5′ and 10′ long, this can change the sketch by 35 square feet. Not a big deal? It is when the two appraisers GLA’s are different by 125 square feet. Measuring the foyer properly will bring the difference to less than 100 square feet, and no calls and exchange of sketches will be needed.

Another common problem I see is the other appraiser rounds up or down to the nearest half-foot, or even the nearest foot. Again, the guidelines for calculating Gross Living Area requires the appraiser to measure to the nearest inch or 1/10 of a foot.

How about dormered areas on second floors ever heard of the 5′ rule? At least half of the appraisers competing with me for relocation appraisal work apparently have not. Gosh, I’ve even seen some appraisers swear that a cape cod without dormers is measuring the first floor and multiplying by 1.5; and if there are dormers, you multiply by 1.6; and if there is a shed dormer, you multiply by 1.7.

Then, there are renderings that don’t even look remotely like the house. I can recite many sketches where one appraiser calls a wall a 50′ straight wall on the rear, yet there are clearly bay windows, 3′ extensions, and enlarged and extended rooms. Hey, if you are using that survey, it probably only gives the dimension at the foundation, not any siding that goes over the foundation.

And by the way, never trust the blueprints or the survey I see errors all the time. Blueprints often change during construction. They are a great guide, but spot-check them on at least 50% of the dimensions. And the survey? I have a collection of inaccurate surveys as well. I suspect most are typographical errors in this case, but surely don’t rely upon someone else’s calculations. Again, spot check that survey before you leave the property.

You don’t believe me? What are these “guidelines” I am referring to? Yes, there is a guideline for calculating the Gross Living Area. Check out the ANSI [6] guidelines (American National Standards Institute [6] and purchase the “Method for Calculating Square Footage” guideline ANSI Z765-2003. The original standard was developed in 1996 and adopted by dozens of organizations including appraisal associations, builder associations, National Association of Realtors, Fannie Mae, Freddie Mac, and ERC to name a few. Updated recently in 2003, the standard describes the procedures to be followed in measuring and calculating square footage of detached and attached single-family homes. It is the purpose of this standard to describe a method of measurement that will make it possible to obtain accurate and reproducible measurements of square footage in single-family homes. The ERC Relocation Appraisal Guide, the book describing how to complete a relocation appraisal, has instructions following these guidelines.

Our profession continues to be “dumbed-down” by box-checking forms, and accurately measuring a property is quickly becoming a lost art. In the Sales Comparison Approach, the GLA is obviously an item of comparison. The Cost Approach seems to not be relevant to anybody anymore (another Blog topic), but if you don’t measure the home accurately, your Cost Approach to Value will be flawed. And although the Income Approach is seldom considered appropriate in residential appraisals, if it is relevant, you better accurately measure the home to apply to the Gross Rent Multiplier.

A final thought, not only will mis-measuring a home lead to a flawed value through any of the three approaches to value, it could lead to a lawsuit down the road for the appraiser. Take a few extra moments to make certain you are doing the job right.

Chip Wagner’s field measuring tools include: Leica Disto Classic 5A [7] laser measuring device, 3′ tape measure on a keyring attached to the Disto, Laser Shades (for the bright sunny days), “Rite-in-the-Rain” paper (for those rainy days), 7-inch pocket size angle tool (for homes that are not square), legal-size clipboard with one-inch hash marks carved into the underside (old-school trick I learned from my father), Lufkin 100′ fiberglass open-reel tape measure (collecting dust) and a Rhino heavy-duty six-foot flexible fiberglass folding engineer’s ruler (my retired appraiser-father’s tool of choice, not used in 2+ years).