Lender Resource Series: Gross Living Area & Above/Below Grade

We regularly hear questions such as “Why wasn’t my 4th bedroom in the basement counted?”, “Why did the appraiser leave out my full bathroom in the basement?” or similar. What borrowers, as well as some Loan Officers, often do not understand is the difference between Above Grade and Below Grade, and how that affects the overall Gross Living Area of a property.

Let’s start with some quick, general definitions:

GLA (Gross Living Area) = GLA is the finished livable space above ground in a residential property. GLA is not the same as TLA (Total Living Area). GLA is defined by The Dictionary of Real Estate Appraisal as the “Total area of finished, above-grade residential space; calculation by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space.”

Above Grade = All living square footage in a home that is above the ground. It does not include basements, even if the basement is finished, a daylight basement, or a finished walkout.

How grade is determined

Below Grade = Living area where some portion of the finished area is deemed to be below ground level, such as basement areas. The area having any portion of the property “below ground level” is considered to be below grade.

For the purpose of the appraisal report, any below grade area is not included in the GLA, nor in Above Grade room counts. Although a basement may be finished to the same quality of construction as the upper level or better, it will be adjusted and accounted for in the Below Grade section of the grid (see above). As with any rule, there are a few exceptions.

Lake homes and split foyer/split level homes may be exceptions (note that these properties are all accounted for on a case-by-case basis). It is typical for lake homes to have living areas below grade, and this space will often be included in the GLA due to the floor plan of most homes sitting on a lake lot. Split foyer and split level homes may also have layouts where the builder purposely includes a lower portion of the floor plan in the GLA. In these cases, the appraisers must treat the home and all comparable sales in the same fashion regarding how the GLA is determined and calculated.

When the appraiser measures the property, they consider the above and below grade areas and will grid the rooms accordingly. Although a borrower may use all the bedrooms and consider a home to be a four bedroom property, the appraiser can only report those rooms/bedrooms/bathrooms, etc. that are truly above the grade level. If, for example, a fourth bedroom is partially below ground, it will be considered and gridded in the Basement/Below Grade area. The finished area will still be considered in the appraiser’s determination of value, but not included in the room counts. It is not uncommon for real estate agents to include these bedrooms or living areas in their descriptions of homes, which can be confusing to borrowers when the appraisal report is completed.

In addition, Below Grade areas may be adjusted at a different dollar per square foot rate than that of the GLA. The appraiser takes into consideration the quality of the construction, finishings, and percentage of finished areas when determining how to adjust the lower levels of a home. Please keep in mind that even if the Below Grade area is finished to the same quality as the Above Grade, it may not be adjusted at the same rate as the upper levels of the home and is still considered to be basement area.

When discussing room counts, square footage, bed/bath counts, etc., it’s important to remember that a real estate agent’s description of a property, or how a homeowner uses the property, may be different than what an appraiser is required to report under the appraisal guidelines. Providing this type of information to a borrower or agent prior to the appraisal report being received may help prevent a frantic call and misunderstanding of the way in which the appraisal report reads.

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