Appraisers are often tasked with providing valuations for properties that can be very different from one another. From one house to the next, things can and often do change. Everything from the number of bedrooms to the quality of the construction. However, in order to provide credible valuations, appraisers often have to find an objective basis for comparison. More often than not, square footage and size become the units of comparison.

However, simple square footage counts are not used. Appraisers use a unit of comparison known as the GLA, which stands for Gross Living Area. The Gross Living Area is used as a standard measure for the size of a dwelling. It is used in real estate appraisals to determine the value of a property. To calculate GLA, the square footage of all floors of the dwelling is measured and included, excluding basements and unfinished attics. The GLA measurement is used to compare properties and to determine the value of a property based on its size. It is important to accurately measure the GLA of a property, as it can significantly affect the value of the property.

The gross living area is typically defined as the finished and heated space in a residential building that is easily accessible and meets certain requirements for heating and ceiling height. These requirements vary depending on local building codes and regulations but typically include a traditional heating system and a minimum ceiling height of 7 feet. This is because construction rules frequently require at least a 7-foot ceiling height for spaces to be considered usable and livable. This is due to the fact that low ceilings can make a place feel tight and uncomfortable, as well as pose a safety hazard if they are too low for people to stand upright in.

Determining the gross living area (GLA) of a property can be a crucial factor in its evaluation and, ultimately, its value. There are several sources that can be used to determine the GLA of a property, such as public records, assessors, and plans or specifications. However, these sources may not always provide an accurate representation of the property’s true GLA for a variety of reasons. One reason is that the information contained in these sources may be out of date or inaccurate. For example, public records may not reflect any renovations or additions that have been made to the property since the records were created. Similarly, assessors may not have access to the most up-to-date information about the property.

Additionally, other sources, such as plans, or specifications, may not always be complete or detailed enough to accurately reflect the property’s true GLA. Public records often do not include information about finished basements or bonus rooms that are part of the GLA, and plans or specifications may not include all of the details needed to accurately measure the spaces. Overall, it is important to verify the accuracy of any information about a property’s GLA, and to use multiple sources of information, if possible, to get a complete and accurate picture of the property’s true GLA. This is where a professional appraisal inspector comes in.

In most cases, the process of obtaining the GLA requires appraisers to inspect and measure a subject property. This is done through a thorough and meticulous process, where the inspector will use specialized tools and techniques to measure every room, hallway, and other living space within the property. These inspections and measurements must conform to the standards and guidelines of the American National Standards Institute, also known as ANSI. ANSI guidelines, specifically, the Square Footage-Method (ANSI Z765-2021), provide appraisers with a standard for measuring, calculating, and reporting above and below-grade square footage(s) to determine the gross living area (GLA) and non-GLA areas of subject properties. This creates alignment across market participants, allows transparent and repeatable results for the user of the appraisal report, and provides a professional and defensible method for the appraiser. ANSI guidelines also provide standards for the design and construction of supplementary units installed in a single-family home, such as an in-law/accessory unit or finished attic spaces. A small, independent living area constructed on the same property as a single-family home is referred to as an accessory unit. It is also known as a secondary unit or in-law unit. Usually smaller than the main house, accessory units serve a variety of functions, such as giving family members or tenants extra living space.

An in-law unit is a separate living space that is typically located on the same property as a single-family home. In-law units can be used for a variety of purposes, such as providing a place for an aging parent or adult child to live, or as a rental property. In many cases, an in-law unit is not considered part of the gross living area (GLA) of a home because it is a separate, self-contained living space. The GLA of a home generally refers to the total square footage of all of the habitable and livable space within a home, including the main living areas, bedrooms, and bathrooms. Because an in-law unit is a separate space with its own kitchen, bathroom, and living areas, it is often considered a separate entity from the main home and is not included in the GLA calculation. The appraiser would take these factors into consideration when determining the value of the in-law unit, and this value would be reflected in the overall appraisal of the property.

These considerations and issues are important and necessary for the appraiser to verify. As stated above, it is during the physical inspection of the property that the appraiser collects the information needed to determine GLA. But a physical inspection also allows the appraiser to gather other detailed information about the property, such as its condition. This is important because the value of a property can be significantly affected by its condition, age, and features. By inspecting the property in person, the appraiser can see firsthand any issues or problems that may affect the value of the property.

Second, a physical inspection allows the appraiser to verify the accuracy of the information that has been provided about the property. For example, if the property is described as having a certain number of bedrooms, bathrooms, and square footage, the appraiser can verify this information by measuring the rooms and taking other physical measurements of the property. This helps to ensure that the appraisal is based on accurate and reliable information.

Finally, a physical inspection allows the appraiser to get a better understanding of the property’s location and surroundings. The appraiser can assess the quality of the neighborhood, the proximity of amenities and public transportation, and other factors that may affect the value of the property.

Conversely, it should be noted that while all appraisers follow the same guidelines and standards when inspecting a property (such as ANSI) and determining GLA square footage, the same is not true for assessors or real estate agents. Information about in-law units is typically not properly disclosed in public records and leads to discrepancies. Real estate agents may not be following the same guidelines when measuring finished areas in basements or attics. Appraisers and appraisals, however, have physical inspections and ANSI standards that are used to verify what is being reported.

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Hybrid Appraisals

In recent years, it has become common for lenders to obtain hybrid appraisals. While appraisers provide an essential service through their reports, this work comes at high costs to the buyer or borrower. This cost can be measured in terms of dollars spent on an appraisal or the time required to produce a full appraisal report. As a result, delays in the lending or mortgage process are not uncommon; more recently, there have been attempts to mitigate this problem. One such attempt is the increased use of hybrid appraisals.

Hybrid appraisals and full appraisals differ in one key aspect, property inspection. In the course of a full appraisal, the appraiser will schedule and inspect the property themselves. The appraiser obtains all relevant property characteristics and data such as measurements, room counts, condition, and quality, and utilizes this information in the report. This process has been the foundation of the appraisal process.

For hybrid appraisals, the property inspection is completed by a third party, and that information is relayed to the appraiser. A non-appraiser or contractor usually completes the third-party assessment at a fraction of the cost.

As part of their inspection, the third-party individual will take pictures of the property and provide these images to the appraiser. It’s meant to be a shorter and less expensive process when compared to a traditional appraisal since the appraiser doesn’t need to visit the property in question. This article will examine the associated risks of hybrid appraisal products and why one might want to avoid them.

What Are Hybrid Appraisals?

Also known as bifurcated appraisals, hybrid appraisals employ a more streamlined appraisal approach that involves separating the valuation aspect of an assessment from the property inspection portion.

As mentioned above, a third-party contractor is charged with inspecting the home, taking images, and writing down important property details. The individual performing the inspection will then complete a property description report and provide all their findings to an appraiser. Finally, the appraiser is tasked with completing the valuation, which they typically do by utilizing data from MLS and other public records.

For the inspection portion, many of the same details are recorded by the third-party contractor, in much the same way an appraiser records them. For example, the third-party contractor collects attributes such as the home’s size, appearance, and square footage. This information is then provided to the appraiser.

In many aspects, a hybrid appraisal is similar to a traditional full appraisal. The appraiser completing the valuation is still charged with determining the scope of work, the highest and best use of the property, and employing the three approaches to value. When reviewing a hybrid appraisal, the valuation portion often is similar to a full inspection.

The process of a full appraisal begins with research being conducted by the appraiser before the full property inspection. The appraiser will gather market and neighborhood data, and verify trends and possible relevant statistics in the course of his appraisal report. Once this information is collected, the appraiser will schedule a property inspection.

During an appraisal inspection, the appraiser will measure the property, make a note of the total number of bathrooms and bedrooms, identify the property’s condition and amenities, and take pictures. The appraiser will then verify comparable sales and their locations about the subject property. All this information is then utilized in the second stage of the appraisal process.

Once the home inspection has been performed, the appraiser begins producing a valuation using the Uniform Residential Appraisal Report. This report consists of a sketch of the property alongside a street map that labels the comparable homes. All pertinent home details will be listed in the information with accompanying images. The report will then delve into the three approaches to value, the Sales Comparison Approach, the Income Approach, and the Cost Approach.

The appraiser’s information is the same whether they perform a hybrid or a traditional appraisal. However, if a third-party contractor is hired for the job, he or she could make mistakes that lead to a less accurate appraisal.

What Are Hybrid Appraisals?

The Risk of Hybrid Appraisals

Hybrid appraisals are designed to make the appraisal process considerably more cost and time efficient. The main issue with hybrid appraisals is the third-party contractor. The appraiser is not responsible for engaging the contractor to complete the inspection. Typically, the third-party contractor is hired by the lender or the lender’s appraisal management company. The appraiser has no say nor control over this process.

The contractor may gather details about the home without knowing exactly what to look for. They are only tasked to fill out a property description form and don’t necessarily ask relevant questions or follow up on issues like an appraiser might. It’s possible for every hybrid appraisal product to differ from the rest. Companies that offer hybrid appraisal products can have their forms and inspection methods, increasing the risk the lender must take on.

This problem is compounded because some third-party contractors are only required to take images of the property instead of performing a full inspection. The gathering and verification of property data is still left to the appraiser, but this time without the inspection.

Furthermore, the contractor isn’t always someone who’s familiar with the appraisal process. They are not required to complete any appraisal education, nor are they trained in the same manner an appraiser is. Additionally, the contractor does not assume any responsibility for verifying the data they collect in their inspections and is ultimately not liable for the hybrid appraisal. The appraiser, in contrast, must complete the final hybrid appraisal and assume the risk of certifying information that might prove inaccurate.

Even though the appraiser doesn’t perform the first stage of the process, they are asked to determine a property’s fair market value without being allowed to conduct first-party research. Questions of legality or square footage verification are still left to the appraiser. And this proves difficult for the appraiser to resolve down the line because they did not inspect the property.

Likely the most notable concern associated with hybrid appraisal products is the level of liability and risk. The risk in this process is not limited only to appraisers. Lenders run the risk of lending on loans where information may not be accurate, underwriters might not be made aware of legal issues to do with the property, and ultimately, borrowers and buyers are at risk of making decisions based on erroneous valuations.

To improve accuracy while also improving efficiency and turn times, lenders could allow the inspection to be performed by an appraiser trainee. However, current lender requirements limit how much an appraiser trainee can contribute. The most frequent restriction is the property inspection; some lenders only allow the appraiser to inspect and do not allow trainees. However, this very same requirement is waived by hybrid appraisals and third-party contractors.

Trainees are required to complete extensive appraisal education and field training. Furthermore, a trainee appraiser is required to obtain a trainee license, which verifies their aptitude and appraisal education. Therefore, a property inspection completed by a trainee will lead to a considerably more accurate result.

During a full appraisal, anything that would receive value in the home would be under the purview of the appraiser. The appraiser then performs every facet of the appraisal process with all the relevant data being considered. An appraisal trainee, who possesses the training and skills, provides the same level of accuracy regarding property inspection. In this scenario, the lender could be more confident that the final estimate of the home’s value is accurate.

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