Some form of this question comes up often. It will either be presented as a question or as a statement. Either way, what is being asked is, "what qualifies as gross living area?" Let's start this discussion with a definition of gross living area.
Gross living area (GLA) is basically defined as: "The total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space." Note: When the structure is a condo, GLA is calculated by measuring the interior perimeter of the unit.
Below are some of the most common questions and statements we've received over the years.
Q: Why is my garage not part of the total gross living area?...it's part of my home...
A: According to the definition of gross living area, the garage is not considered living area. Unless of course it was legally converted (with permits) into living area with the garage door sealed or removed, floors finished, sheet-rock on walls and ceilings, lighting, window(s), heating and/or cooling. At which point, it is no longer really a garage. See below image of a finished garage area.
Given this finished garage is legal (permitted), there's a very good chance an appraiser would consider this "living area".
Now, if it's merely a garage that is being used as a recreation room (see following image) or an additional family room (e.g. a garage with couches and a T.V.), but still has a usable garage door entry, it's still a garage and therefore not considered living area.
What do you notice about this picture? I see a water heater, exposed ceilings, carpet over concrete, some built-in closets, and exposed HVAC ducting. Besides all that, the garage door motor is still hooked up to the ceiling. This garage was clearly being utilized as a second family room. What is not shown in this photo are the couches, coffee table, refrigerator, and mounted flat screen T.V. to the left of the tankless water heater. There are many people who would consider this living area, as it is clearly being lived in. However, most should be able to tell the differences in quality and degree of finishes between the two types. The former picture would not likely be utilized as a garage. The latter appears as though it could be repurposed to be used as it was originally intended.
Q: You didn't include my basement area in the square footage of the home?
A: If it was not finished with the same or similar quality of finishes and craftsmanship as the above ground level(s), then it is basically a basement, an area mostly used for storage.
The above image is of a typical "basement". The majority of the time, this area will need to be segregated as separate building area, and it is typically awarded a lower value than the above grade area for various reasons, including, but not limited to:
It lacks the appeal of the above grade living area
It has exposed walls and ceilings
It has exposed piping and/or wiring
It is not heated and/or cooled
However, there are some cases when the basement area is finished with the same or even superior quality finishes as the above ground living area. This is often seen in cities such as Menlo Park, Palo Alto, and Atherton, where zoning restricts new development to no more than two above ground stories.
So developers or owner-builders wanting more square footage will often develop a basement level, and they'll design it in such a way that it almost feels as though it is not a basement. It could have good ambient lighting through the use of patios and light wells. It will likely have high ceilings and be finished with similar quality flooring, lighting, heating and cooling, and similar appointments as the above grade levels. The following images exemplify a high-quality finished basement.
The flooring, ceiling height, lighting, and quality of craftsmanship were equal to those in the above grade levels.
The area is heated and cooled as is seen in the HVAC register on the ceiling.
The below grade patio area provides substantial ambient natural lighting as is seen in the latter two photos.
Market participants (e.g. buyers, sellers, agents, brokers), will often recognize equal value and appeal of these types of high-end basement areas. Accordingly, brokers will typically include them in the total gross living area and either fail to or decisively neglect to indicate the square footage of each level. So unless the appraiser can somehow determine the square footage of each level, it may be more logical to include these types of highly finished basement areas in the total gross living area; it helps the appraiser make more appropriate adjustments, promotes uniformity in the analysis, and it recognizes the specific nuances of those market segments. Many other appraisers and appraisal reviewers have argued against this method (which happens often); however, I merely direct them to the following excerpt from the FannieMae Selling Guide Section B4-1.3-05:
"The appraiser may need to deviate from this approach (segregating above-grade and below-grade areas) if the style of the subject property or any of the comparables does not lend itself to such comparisons. For example, a property built into the side of a hill where the lower level is significantly out of ground, the interior finish is equal throughout the house, and the flow and function of the layout is accepted by the local market, may require the gross living area to include both levels. However, in such instances, the appraiser must be consistent throughout the appraisal in his or her analysis and explain the reason for the deviation, clearly describing the comparisons that were made."
Q: When I bought the home, the listing indicated the gross living area was larger than square footage indicated in the appraisal, what's the deal?
A:There are various reasons why an appraiser would arrive to a different gross living area than what was indicated in the MLS (multiple listing service) listing.
Sometimes, when listing a home, a broker will include the garage in the total gross living area in order to increase the perceived size of a home. Sometimes, the home is new, and the listing broker is basing the square footage on the numbers provided by the developer. See below example of a newly constructed home listed on the MLS.
Information regarding the property address as well as the listing and sales agent information has been deleted for privacy purposes. However, the highlighted sections clearly evidence the discrepancy in reported gross living area, with the acknowledgement of this only listed under the private remarks, which are only visible to other agents and brokers. The home was listed as having 2,606 sq.ft. of gross living area, when in fact, it had only 2,181 sq.ft.
In this case, listing the home at the higher square footage allowed it to fall within a superior sub-market of recently built homes in this particular neighborhood. However, the homes that were truly larger than 2,600 sq.ft. were selling at this time for $2.7 million and up. There are many reasons I can think of as to why it was marketed this way. The most likely reason was to try to capture the attention of buyers in the higher price point that may not have considered this home when selecting their home size preferences.
Other times, there have been permitted additions to the home that have yet to be updated in the public records. Often with older properties, there are unwarranted additions that occurred many years in the past and public records do not recognize the legality of those areas. This situation is ubiquitous in the City and County of San Francisco. Public records data regarding square footage, bed, and bath counts are very often incorrect or outdated.
Ultimately, it is mostly up to the appraiser's discretion, experience, and familiarity with the market, and what the appraiser's peers would also do, when deciding what qualifies as gross living area.
Do you have questions about gross living area? Send us a comment.
James is a Certified Commercial Appraiser and Licensed California Real Estate Broker based out of San Mateo County, CA. He specializes in commercial and residential real estate valuation.