Starting April 1, mortgage-giant Fannie Mae has implemented new mandatory standards for appraisers specifically around the measuring of square footage, with the hope that they become more widely adopted and make the often complex and subjective process less confusing while combatting long-running issues with racial bias.
In a webinar hosted by industry trade magazine Valuation Review, two experienced appraisers were joined by Fannie Mae senior director of collateral policy Lyle Radke in laying out what the new standards are (know as “ANSI”)—what they aren’t, and how they are likely to affect the home buying and selling process going forward.
“The first six months is going to be a learning curve,” said Hamp Thomas, an appraiser for Carolina Appraisers, who helped pioneer the new standards.
After decades of having different appraisers in every jurisdiction and from every company essentially having their own ways of deciding what the livable square footage of a home is, the hope is that Fannie Mae’s one single method will smooth out the process of running comps for real estate agents, avoid some of the pitfalls with lenders and appraisals and better automate and digitize their model.
“We aim to jump into the fray here and provide some leadership,” Radke said. “We have spent a good amount of time researching the various potential standards available and as result of our research we felt that the ANSI square footage standard was the best available option.”
These specific standards have also been adopted by the National Association of Home Builders (NAHB), have existing continuing education courses available and are relatively simple at 16 total pages, according to Radke.
Though they only apply to single-family homes and only encompass the single data point of square footage, Radke said the goal is to remove subjectivity from the process at least in part as a response to racial inequity in appraisals—with both data and the experiences of homeowners and REALTORS® showing people of color receive lower appraisals.
“It has created a lot of noise and controversy,” Radke said. “To the degree that we can migrate our opinion into more of a standardized or factual approach that helps us defend ourselves from any accusations of exercising latitude in an unprofessional way.”
The Biden Administration recently announced a five-step plan to combat racial bias in appraisals. Additionally, the Appraiser Institute has more recently acknowledged the need to address unconscious bias after calling the idea “absurd” and denying the existence of racial biases in appraisals in early 2020.
The new universal standards are also meant to prevent unnecessary conflicts and disagreements with housing appraisals. Though likely many governments or appraisers will continue to use other opaque standards, having at least one measurement that is known and mostly quantitative can only help, Thomas said.
“The stuff has not matched for all this time,” he said. “Now that we have ANSI we’re starting to look at it a little closer…the comparables don’t match with ANSI? Well they didn’t match before.”
“If you have at least one as a known, then your whole math equation is better,” said Richard Hager, President and Chief of Appraiser for American Home Appraisals. “It’s not perfect, but it’s better.”
ANSI also leaves room for an appraiser to opt out in special circumstances where a home just can’t fit its square footage into the standards, according to Radke, and also allows appraisers to provide a “narrative” explanation for why they couldn’t, or areas where they had to deviate from the standards.
Thomas said having some kind of concrete standard for something as essential and universal as square footage has been a long time coming.
“Somebody had to have the chutzpah, if you will, to take that first step, and that’s what Fannie Mae did,” he said.
