Fannie Mae’s Big Christmas Surprise: ANSI Required in 2022

Here comes Santa Claus, here comes Santa Claus … no, wait! It’s Fannie Mae.

So…Fannie Mae brought us a big ole early Christmas surprise, didn’t they? Boom! I don’t know if it’s a gift or not. You can decide. If you’re on the email list for Fannie Mae, you got the email on December 15 at 11am CST. And by the way, if you’re not on that list, jump over to Fannie Mae and subscribe to that list! That way, you’re in the know whenever they make a policy change.

Regardless, you aren’t likely to miss this one. The whole appraiser world is buzzing about it. But if by some chance you didn’t hear, here’s the big news: Fannie Mae standardized property measuring guidelines. Here’s a brief excerpt of the press release:

“Appraisers will be required to use the American National Standards Institute standard square footage method for calculating ANSI® Z765-2021 Measuring Standard (That’s the newest edition. It just came out in March, by the way.) for measuring, calculating, and reporting gross living area (GLA) and non-GLA areas of subject properties for appraisals with effective dates of April, 1st, 2022 or later, for loans sold to Fannie Mae.”

There’s a cute little video there you can click. And if you click on that fact sheet, it brings you up some facts. I guess that’s why it’s called a “fact sheet.” Here is is: Standardized Prioperty Measuring Guidelines.

Why did they make this change?

Basically, there was a lack of consistency. I mean, you could have three different appraisers go out and appraise the property and get three different answers. Right? So the whole intent of a standard is to get us on the same page, get us to have a level of consistency.

Bottom line: April 1^s is your deadline. By April 1^st, you’re going to start measuring by ANSI standards. And really, if you think about it, it’s kind of a good thing. I mean, there are pros and cons. But the thing is, if four appraisers measure a house, we ought to get the same answer, or at least be really, really close.

Everybody’s Biggest Problem with Measurement

As you probably know, some new changes to ANSI came out in 2021. I actually served on the consensus committee that did that. We had 44 comment letters, and 40 of the 44 were on the measurement technique for the second level on a sloped ceiling. Anyway, a couple of areas of concern in our Clubhouse Appraisal Talk group last night: Somebody was asking about the ceiling height, and that is a concern. Say you’ve got a house. And the house has a living room, kitchen, two bedrooms, and a bathroom on the primary level. Then you go upstairs, and there’s two private sleeping quarters up there and a bathroom. The only problem is the ceiling height is 6 foot 6.

Well, that doesn’t adhere to ANSI standard. So the second level in this example I just gave would not be considered square footage. That’s in accordance to the ANSI standard. Again, I think standards are good. They give us a way to try for a level of consistency. They get us all on the same page, or at least similar pages.

But that’s the area I struggle with, because we as appraisers are market analysts. We analyze the actions of market participants. Let’s look at an example. Do market participants think that that house is a two-bedroom, one-bath because of the lower ceiling height on the second level? Or do they consider it a four-bedroom, two-bath?

I think as an appraiser, I’ve got to look at that as a four-bedroom two-bath. That’s how the market looks at it. But the square footage, in accordance with ANSI, would not include that square footage. So that’s one challenge.

Comply with ANSI and get real about the market.

There are a few ways that you could comply with ANSI and also do a good job as a market analyst. One way is to say, “Okay, the square footage in accordance with the American National Standards Institute Z765 is 1,000 square feet. Whatever’s on the first level. However, market participants view this as a 1,500 square foot home, 4-bedroom, 2-bath, and that’s how I’m going to do it. So for analytical purposes, we’re going to analyze it like the market does.” I think that’d be okay.

Let’s look at USPAP. What does USPAP care about? Certainly protecting the public, that’s the first sentence of the preamble. But USPAP also cares about credible assignment results in the development aspect of USPAP, Standards Rule One. And then Standard Two, we’re concerned about not being misleading. I think I’ve achieved that if I say, “Hey, the square footage per ANSI is this. But the square footage that the market acknowledges is the higher number.” I think that’s one way that you can handle that.

Another way to handle it is: Put 1,000 square feet in for GLA for square footage. And then address the upper level, the 500 square feet in this case that doesn’t meet ANSI, as if you’re using pre-printed forms — as maybe a line item. And you would adjust it in that area.

And that’s what Fannie Mae’s fact sheet says: “If a house has a finished area that does not have a ceiling height of 7 feet for 50% of the area, some Cape Cods for example, in conformance with ANSI standard, the appraiser may put this area on a separate line, in the sales comparison grid and make an appropriate market adjustment. The report will be ANSI compliant and also acknowledge the contributing value of the non-GLA.”

So it looks like they want you to do it as a separate line item. That’s one of the two options. And I think you could do that and create credible results and not be misleading.

Takeaway

Appraisers resist change. We, as human beings, resist change. Here is a change. Get over it. It’s coming. You’re going to have to embrace it. And you’re going to have to adhere to ANSI.

Get your copy of ANSI. You can do so by going to Home Innovation Research Labs. I can’t give you one. It’s copyrighted. I’d love to give you one for Christmas. Can’t do it. So you’ve got to get your own, get familiar with it, understand it.

This post is not intended to be an educational offering for you to learn ANSI, so if you want more information, guess what? Appraiser e-learning has a bunch of classes on ANSI. Hamp Thomas has created multiple courses on ANSI: a self-paced online video course and a bunch of live-virtual courses throughout the year that will help bring you up to speed. He’s also got whole bundle of courses on becoming a home measurement specialist. You don’t even have to be an appraiser to get that. So if you’re a trainee listening to this, and you want to get an additional certification under your belt — if you want to stand out from the crowd — look into getting the HMS. If you’re an appraisal office, and you have a couple of workers there who are not appraisers or trainees, they could get the HMS. I know one appraiser out of Nashville, that about 30% of his income is derived from going out and measuring houses. It’s an excellent way to have a little side business to generate income and help others. So if you’re interested in that, go check it out: appraiserelearning.com.

Stay safe. Take a little break. I mean, work, work work. I get it. How things are these days. I get it. But take some time off. Hug somebody you love. And until next time, happy appraising. —Bryan