Hello, Thanks for checking the post! This is an important one and I have had several complications arise from this issue. Enjoy the read and I hope you pick up a few things. Does my Basement Room Need a Building Permit? IT DEPENDS?If you are a homeowner, a real estate agent or even a potential buyer when you look at a property with a finished basement you should now ask if the space is permitted at the local community Building Department. Every town or county may have different policies and procedures. Up here in New England the rule of thumb is unless your project is under $500 total cost and cosmetic in nature you better check with the permit police. First off, do you really know if it is or is not permitted? If you bought the property and the room was already there, it may have been permitted by the prior owner. Then again, it may not. The way to make sure is visit your local Building Department and ask to see the file on your address. Some areas of the country this is becoming free public and on line information. Here is a question – is it a nice room and even something that has value? I have seen some shoddy rooms built with two by fours and ugly paneling, no carpet, no finished ceiling or even heat. With that said it was in the MLS marketed as a nice family room. I think not. If it is nothing special for a room and you are thinking of putting the property on the market, it may be wise to just demo the room before you have any inquiries from agents, appraisers or buyers at City hall talking to the Town inspectors. Just a thought. Depending how involved the demo may get, you may need a permit (no joke). If it is a nice room with good condition and quality finish - it may get tricky. What if the current local authorities do not sign off and approve the room as grand fathered? What will the lender do in this case? How do appraisers handle this scenario? Could there be any value difference to the sale price or refinance price if the room exists legally, grand fathered after some repairs or considered illegal and needs to be removed completely? HOW OLD IS THE ROOM?Next, you must make a semi-educated guess as to when the room may have been constructed. Typically, if it is over 10 to 15 years old it may be grand fathered and the room may not be an issue. You can sometimes tell how old it is by the materials used such as lights, wallpaper, carpeting, type of wiring if it is visible somewhere and those type of things. Paneling is usually a dead giveaway it has been around a while. If it is newer than 15 years old, you need to ask what is the function of the room. If it is a playroom, in home office, den or Man Town with the big screen to watch the game with friends, it should be straightforward with the Town authorities to get it signed off and cleaned up permit wise. A bedroom, bath, in-law type accessory unit or other type of finished space it could get more involved. What if it is found on the Assessor data card as finished basement space? That makes it legal, right? Not necessarily. Different towns, cities and departments within the same community have very different rules and regulations. ALWAYS check with the local authorities. HOLD ON - NOT ALWAYS!In some rare communities in our area it is not usually fun dealing with some of these inspectors. If it was illegally built one year or fifty years ago, illegal is illegal. The various inspectors or even just one inspector could take a hard line with the process ask from complete removal. Building Codes, electrical, plumbing, gas, lighting, ventilation, egress and many other concerns are covered so just because a room currently exist does not mean it is safe to use and will be allowed as such going forward. IS IT A BATH?This usually needs a permit in most areas. If it is a bathroom then we can start to have a little fun. In the case of a bathroom there is obviously electrical issues which require outlets to be grounded a special way with circuit interrupter systems. There is also plumbing which needs to have drain traps and proper venting for gases. In addition, the waste drains need to be completely sealed so no problems occur with that sewer effluent getting backed up into the basement and finished space. It needs to be built using the right materials to avoid mold and trapping moisture. It needs to have a direct vent to the exterior of the property and so on. IS IT A BEDROOM?When it is a bedroom you have specific building codes and escape routes to consider for emergency situations. For a bedroom, you need a minimum sized window in case you need to find it in the dark and get out by it. It needs to fit a firefighter with an oxygen tank on their back – just in case. Most people don’t think about that. You will also need proper smoke detector and carbon monoxide placement specific for a bedroom. Of course, when dealing with a bedroom you need to consider the Building codes, Board of Health codes in the room and occupancy of the dwelling, Fire codes and so on. Depending on where you are in the country, you may also need enough of a sewer system to accommodate the added bedroom. ARE YOU ON PRIVATE SEWER?Septic systems are designed according to bedrooms and the Building Codes and Board of Health Statutes control how many people are allowed according to bedroom count, not bathroom count. If you already have an existing three-bedroom septic but you installed a fourth bedroom in the basement without a permit, you may have a little issue. Septic systems are designed, engineered and built to specific standards concerning how many bedrooms and occupants are allowed in the property. Adding more people and bedrooms than the system can handle may cause earlier failure or unsanitary or safe conditions thereby putting the property in non-compliance within the town and potentially cause issues with a sale or refinance. Always check with the Town Building Department or inspectional services group for more information on how to have the basement room comply. Going forward, appraisers, lenders and the Government Sponsored Entities are requiring the due diligence. Any comments or feedback on this issue please let me know. Thanks for visiting and please come back often or refer the site to others. Best Regards Steve​


 I have been living and trying to work through this very fluid real estate situation since the Great Recession began in 2007. I continue to work hard to understand and interpret how the changes and new rules of engagement are affecting buyers, seller, agents, appraisers, mortgage companies and everyone in between. Since 2008 I have watched major enactments of legislation from the Home Valuation Code of Conduct (HVCC) to Dodd-Frank Financial Reform Act to the proliferation of Appraisal Management Companies to name just a few. During these changes, the individual industries did what they had to do to make changes to their own organizations and alert their members the best they could. Not all members got the message or acted on it. Many are still in the dark. There has been no real communication between the industry genres. Even worse, how these new rules now affect the homebuyers and sellers. Very few are talking to each other and asking questions. TODAYS LESSONIn today’s lesson, I want to tell you that the federal regulation initiated by the Home Valuation Code of Conduct (HVCC) severed immediately all ties between homeowners, homebuyers, real estate agents, mortgage officers with the lonely old appraiser. Everyone else could continue to talk to each other and compare noted. Law now prevents the appraiser from interacting with the other parties to the transaction.  That is a very powerful paragraph worth re-reading. Since the Home Valuation Code of Conduct was sunset the spirit of the rules and requirements has been transferred to the Dodd-Frank Financial Reform Act. This is the acting legislation we have today and going forward. It has been mentioned as a target of overhaul by the Trump administration – so it will remain a fluid situation for the immediate future. WHO YOU GOING TO CALL? Without getting overly technical about the laws, understand things have changed dramatically. Real estate agents can no longer steer/advise/push or direct any appraiser toward any value level when involved with a specific appraisal assignment. A home seller cannot get any answers from the appraiser concerning several questions such as value, process, client conditions, repairs noted, how long until the client should get the report, is everything okay and so on. They are not the client and cannot be told anything! A homebuyer in the process of buying the property being appraised cannot even talk to the appraiser about any aspect of the report just like the seller. They are not the client. Yes, I know that you paid for an appraisal but you are still not the client. There is more information and explanation about this in my eBook WHAT SHOULD I KNOW ABOUT MT APPRAISAL INSPECTION? And Should I Worry?  Pick up a copy today! As a matter of law the buyer will get a copy of the appraisal but even with that they cannot directly contact the appraiser should they have questions unless they get written permission from the appraiser’s client – which is not the buyer, as noted above. Finally, the local neighborhood mortgage officer or internet mortgage advisor who deal with the buyer on a day to day basis - they cannot even contact the appraiser for any clarifications.There is complete separation of the parties making money or that have something to gain or lose from the transaction must be separated. That was the intent of the Home Valuation Code of Conduct and now Dodd Frank regulations. That is exactly what happened. Anyone with anything to gain from each transaction was immediately separated from the appraiser from the acceptance of the initial offer to purchase through the closing of escrow and forevermore! The parties must never speak of that specific file in any depth without the consent of the client. If you found this information and website helpful please pass it on to someone else. That would be an awesome compliment. Check out my eBooks, I trust you will enjoy them. Have any comments or questions please let me know. Check back often at for more on similar topics. Best Regards, Steve​


 First, calm down and look at this with an open mind. There are many factors, features and methods that appraisers need to look at that can make a valuation come in low. Appraisers are under a ton of scrutiny in this new electronic big data age. In fact, it is just getting started so things may not get any better any day soon. The more data that is in the system the more that can be organized, scrubbed and manipulated. If you follow my blog, you are now well aware that the Federal Government, big banking and appraisal regulations leave little to the imagination or human interpretation anymore. Appraisers are just the messengers. The reporting and data all need to conform to strict standards and policy beyond the appraiser’s control. REVIEW THE REPORTNot everyone is supposed to have access to appraisal reports because of privacy laws. If there is access to a copy then read it thoroughly. Just because it is low does not mean it is wrong according to the new rules of engagement. Items such as the living area of the home, what living level is it on, garage count, bath count and bedroom count can have a great deal to do with the value. If items like that jump out as possibly being wrong then there may be a chance to challenge the appraisal value. Appraisers do make mistakes and most times they are under very strict turn times of twenty-four to forty-eight hours from inspection to return the report to the lender or appraisal management company. WHAT ITEMS HAVE VALUENot all parts of a property have a value in the big scheme of an appraisal. Things like newly painted interior walls or a new dishwasher really do not have a dollar for dollar accounting on an appraisal. The reason is there is no item for item way to put a market reaction on some of these items by piece meal. An appraiser does not have that level of information based on assessor data or multiple listing data. Do not add any living area or room count located below grade, even just a little below grade because that is not allowed in the appraisal world. That family room and bath down stairs are not counted for in the room count nor in the finished living area. It is put into a line item area and accounted for but not in the overall. An issue like that is not the appraiser making a mistake, that is the federal government and lender rule being followed. CONDITIONAppraisals across the country are now written to a base standard for quality and condition. If a property has been fully updated and remodeled, fully permitted and verified of course, the updates can be grouped to a higher overall condition than a property that does not have the same level of update and remodel. An adjustment of the upgrades can be made. Remember, the adjustment will not be dollar for dollar depending on how long ago the changes were installed and how much time or accrued depreciation has occurred since then. QUALITYVinyl flooring, laminate countertops, and builder base cabinets and quality items do not compare the same in an appraisal as hardwood or tile flooring, granite or quartz countertops, cherry or maple cabinets, custom light packages, custom built in bookcases or hutch, wainscoting or custom trim. Other items such as higher ceilings, steel beam as the main carry support, high-energy efficiency building materials and techniques and similar items add to the quality and should be compared to the same age and quality type of comparable sale. SOLD VERSUS ON THE MARKET DATAReal estate agents have complained for years that appraisers do not know when the current market is increasing in value and they keep killing deals because they use older data. Builders often times have the same sentiments. Appraisers are not keeping up with cost of labor and materials. The truth is lenders and secondary market players are looking for sold historic data which carries more weight in an appraisal than properties currently on the market. The active and under agreement data are looked at to develop trends but they may not carry full weight in the report conclusion. In stable markets, the sold properties are most heavily weighted for valuation than the on the market stuff. If the homeowner or real estate agent have some specific data indicating rising market conditions they should absolutely provide this to the appraiser. Please make sure no one is attempting to pressure or steer them to a specific value or attempt to coerce a specific result or dollar amount with the data. Most everyone can converse with an appraiser, just know everyone’s role. DEVELOP MARKET TRENDSDuring rising markets of several months, some under agreements can be weighted in the assignment as there is a definite recognized trend that can be defended and utilized. Some appraisers take the current six months’ average sale price and compare that to the prior six-month grouping. Still, another third grouping is run for the prior six month as well. That would give three cycles of six month sold data which usually shows a trend of rising, dropping or stable. Some do that by quarters, some run it monthly. All the ways will develop a trend. My multiple listing service also provides median sale by quarter for every town in Massachusetts.  I personally run several quarters of median sales against its year ago counterpart. Does that trend confirm my above data? The government now makes appraisers use a special form called the 1004MC which also attempts to develop neighborhood or community value trends. This is added on most appraisal reports and another way of check and balance. This will make appraisers serious think about taking sales from over 1 mile away or over six months from sale date when there are actually similar sales within a closer proximity and closer time line shown in the 1004MC. If all that data noted above are showing that prices are stable and the property is under agreement for much more than the market indicators - is that a rising market? If there are half dozen or more very similar properties under agreement in the same market for higher prices, it could signal the start of a changing trend. That can be used in the report. AMUNITION TO CHALLENGE APPRAISALWhen all is said, and done if very similar sold properties nearby were missed or some big value items were not credited in the original appraisal report then an attempt to provide suitable sold or under agreement property data may be in order. If anyone has ammunition to challenge the appraisal then they certainly have the right to do that. Just the fact that someone is mad that the appraiser came in low is considered frivolous and most likely will not amount to too much. SOME RULES OF ENGAGEMENT FOR PICKING DATAA quick thing to remember is that appraisers must abide by a host of rules and regulations in their reports. They are under some rules of engagement you may not be aware:Try to use properties in the same neighborhood but not over one mile IF there are similar size, age and style properties available.Try to stay within a range of 15% total net adjustment and 25% gross adjustment. The more the properties are different the more adjustments are needed and the higher the percentages go. Are the properties really that similar after all?Try to stay within six months from the sale date. Not the original listing date, the date when an appraiser is coming into the property. If the market is stable, you can go back to nine months or even twelve if you really need to. There better be little to no similar data within a closer time line before anyone can do that.Try to utilize the method or bracketing. If a property is a two bedroom, then find a few two-bedroom sales. If the property has no garage, then a couple sales with no garage is needed. Other items like no basement, small lot, traffic, location, zoning location and several other items are bracketed when possible as well. The last item alone has created lower appraisal values than any of them. When in doubt, call an appraiser when pricing a property and before putting it on the market. You will pay a little for the service but their knowledge about how the property is going to compare when the official bank appraisal is written may save time and money in the long run. If you need help with a referral to a local professional, please drop us a line. Thanks for being on the post, please leave a comment, like us on face book and pass along this information to someone else that may benefit. All I want to do is educate the masses to the new real estate rules. My eBooks are available for just that reason and I encourage you to pick a couple of them up today. Thanks for visiting Best Regards,Steve​

My goal is to educate, inform and entertain your real estate curiosities