Above and Below Grade | Understanding Home Spaces

Last updated on March 27th, 2024 at 12:44 pm

When it comes to buying or selling, understanding the different spaces within your home is critical in determining the estimate of its value.

Two terms commonly used in the real estate industry are above and below grade. Here, we’ll dive into what these terms mean and how they can impact the value of a property and the home-buying process as a whole.

Disclaimer: Our articles are written by a Licensed or Certified Residential Appraiser. This information is meant for educational or informational purposes only, and does not support or indicate an opinion of value for your home or property, nor does it provide any type of value indication for a lender, attorney, realtor, or any other individual or entity.

First, let’s get a clear understanding of what these terms mean in a real estate context.

To put it simply, above grade refers to any space in a home that is fully above ground level. Above grade spaces typically include main living areas, bedrooms, and kitchens – most often found on the main level or higher.

• Lots of windows and an abundance of natural light
• Direct access to the exterior of the home (usually through a door)
• Greater fluctuations in temperature
• Superior visibility and view of the surrounding landscape

In contrast, below grade refers to any space in a home that is partially or entirely below ground level. These spaces can be found on lower levels of most homes, and usually include basements, storage areas, laundry rooms, or additional finished areas, though there are vast differences depending on the layout of the home and its specific features.

• Limited natural light
• Lack of direct access to the exterior of the home
• More stable temperatures due to being underground
• Greater susceptibility to moisture, dampness, or flooding

From an appraisal standpoint, understanding above grade and below grade spaces is essential for an accurate home valuation. 

Above-grade spaces, in most cases, are valued at a higher price per square foot because they offer more natural light, better views, and easier access to certain areas.

That said, below-grade spaces can also add significant value to a home, even if they are not technically “included” as part of the reported square footage.

Appraisal reports are versatile and somewhat subjective – no standard says finished basements or below grade areas are worth “$” and above grade areas are worth “$$”.

In my almost 20 years of being a real estate appraiser, I’ve seen the whole spectrum of basement finishes. To me, it has really become a case-by-case basis in determining how much value they actually add.

Some finished basements (think red shag carpet and dark paneled walls reminiscent of the 1980s?) may only add a small amount, if anything, to the overall value.

Consider this – how much “extra” would you pay for a dark, dated dungeon-esque lower-level room that no one will ever want to spend time in?

If you’re thinking not much, you’re thinking like most appraisers.

On the other hand, basements with high-end finishes, large windows, and great functionality can be worth just as much per square foot as the main level.

1. Quality of finish: This includes materials used, craftsmanship, and overall design. A simple room with drywall, carpet, and basic finishes will not add as much value as a fully finished space with high-end features like hardwood floors and custom built-ins.
2. Condition: Like any other part of the home, the condition of the finished basement can greatly impact its value. Are the carpets worn? Walls and ceilings from 1985? Or has the area been well-maintained and updated?
3. Functionality:  Is the space usable and functional? Or is it awkwardly laid out with a utility area and supportive beams stuck in the middle of the space? Appraisers will take into account how well the below-grade area functions as a living space.
4. Size: The size, or square footage, of the finished basement will also play a role in determining its value. Generally, the larger the space, the more value it adds to the overall home.
5. Room Count and Configuration: Similar to above-grade areas, the number of rooms and how they are configured can impact how much value a finished basement adds. Defined spaces like bedrooms, bathrooms, offices, or kitchenettes will likely add more value than a big open space with no defined living areas.
6. Natural Light: The amount of natural light in a finished basement can also influence its value. Basements with large windows or walkout access to a backyard will typically be considered more valuable as they offer a brighter and more open feel.
7. Musty smells or dampness: Basement areas that have a musty or damp smell may detract from the overall value of the finished space. This can usually be changed by addressing any potential moisture issues and keeping the space better ventilated.
8. Local Market: As with any property, the local real estate market will ultimately determine the value of a finished basement. If finished basements are highly sought after and add significant value to homes in your area, you can expect yours to be appraised at a higher value.

For example, if your local neighborhood values additional bedrooms & baths, or you have a walk-out to the backyard, it may be worth working that into your plans or making the walk-out area a focal point to maximize access and the amount of natural light.

RELATED: COMMON APPRAISAL QUESTIONS

In the real estate world, you’ll find there is often a discrepancy in how a property’s square footage is reported or calculated, depending on the source. This depends heavily on whether or not the area is above or below grade.

Most of us have a general idea of our home’s square footage, and we typically get it from one of three sources:

Your realtor’s job is to describe your home in the best light possible, and make sure buyers are aware of all that wonderful living space, no matter where it is, right? Right.

This is why your real estate agent may list a home and describe it as having 3,000 square feet – which could include the main living area, second floor, the renovated lower level family room, and that heated studio over the garage that was built by the previous owner.

Now, the appraiser might come along a week later and conclude that the home has only 1600 square feet of living area, 800 square feet of “below-grade” finished basement, and 600 square feet shown as a separate “amenity” for the studio over the garage.

Neither the basement nor the garage studio will be included in your square footage by the appraiser.

If this doesn’t already make your head spin, consider that the tax assessor might come along and report yet another number on the tax rolls that reflects a completely different square footage than the previous two examples.

So, what gives? Who is correct?

The answer is, it depends. They might all be correct, as each of these sources has different standards or purposes for measuring and reporting square footage.

RELATED: DOES AN APPRAISAL INCREASE MY PROPERTY TAXES?

I will note here that in my state of NY, the real estate agents are supposed to report in their listings the square footage that matches the tax records, but they don’t always follow that rule. And honestly, I can’t blame them too much…

Their job is to get the best price, and if they can report a larger square footage that reflects what could easily be utilized as living space, that could potentially attract more buyers.

(This matter is often a source of much disagreement between agents and appraisers)

But let’s stay on topic. 

In this case, the real estate agent who reported 3,000 square feet is using all finished and usable living areas, both “above and below grade”, while the appraiser is differentiating between the two, and following additional guidelines set forth by the American National Standards Institute (ANSI).

This discrepancy can be confusing (and infuriating) to homeowners as it tends to have a real impact on a property’s value estimate.

The tax assessors use yet another set of guidelines for determining square footage, which could include factors such as the style of the home or zoning restrictions. Tax assessors have their own methods for reporting square footage, which varies by town. This may or may not align with other industry standards.

In addition, they don’t typically have access to the interior of the homes they are reporting on, so their measurements may not be as accurate as those of real estate agents or appraisers who physically visit the property.

Their purpose in determining square footage is to follow a consistent standard that determines a fair property tax amount for each homeowner – completely different than that of the agent or appraiser.

I should note that these differences in reporting are not intentional or meant to mislead buyers or appraisers.

In many cases, it simply comes down to different standards and the purpose of the information.

So what does this mean for buyers and sellers? What it comes down to is that it’s important to understand where the reported square footage is coming from, and why it might differ depending on the source of information.

In terms of home value, the biggest impact on your transaction will likely come from the appraiser’s point of view, since they are the ones who determine the value of the property for lenders.

As I noted, the guidelines that real estate appraisers must adhere to when calculating the gross living area (gla) of a home are set forth by ANSI (American National Standards Institute), which were put in place in April 2022. 

We don’t make the rules on this; adherence to these guidelines is required by various governing organizations such as Fannie Mae, Freddie Mac, and the US Department of Housing and Urban Development, as well as most mortgage lending institutions.

First, I think it’s important to understand the term “gla”, a term commonly used by appraisers, real estate agents, underwriters, and others in the industry.

GLA is understood by appraisers to mean above-grade, finished area. This includes levels that are fully above ground level, have egress, and are finished with a permanent heat source installed. In appraisal reports, these areas are clearly differentiated from below grade areas – finished or unfinished. 

The reason for implementing a national standard for determining GLA is to provide consistency among real estate appraisers and provide clear definitions of what exactly can be considered  “gross living area” and what cannot.

This ensures that all homes are evaluated consistently and accurately, regardless of their location, design, or the appraiser’s personal opinion.

I could devote an entire article to the lengthy ANSI measurement guidelines, but to make it simple, these are the main points to consider.

• Have ingress and egress (meaning it must be accessible from other areas of the home)
• Have ceilings at least 7 feet high (sloped ceilings above 5 ft. high may also be included in some cases)
• Be finished with acceptable quality materials (A bedroom in mid-renovation with drywall and plywood floors does not qualify)
• Be adequately heated via a permanent heat source. (wood burning fireplaces don’t cut it)
• Be accessible from the main dwelling without having to go outside. (Remember that studio above the garage I mentioned earlier?)
• Be FULLY above grade level (sorry, finished basement) Even if your lower level is only a foot below grade, the entire level is to be considered basement.

There are exceptions to these rules, of course, as there are many unique homes that don’t align with a single one of these guidelines. However, these are the basic standards for the majority of homes.

It’s important to emphasize again that just because certain areas don’t meet this criteria does not mean they can’t add significant value to your home.

An appraiser can add within their report any factor or amenity that impacts the value of the home, as long as it’s noted and explained in the report.

I often have to clarify this to angry homeowners who assume their home’s value would have been higher if their finished basement was included in the gross living area noted.

What they often fail to notice is that further down on the same page of the report, (usually right below the square footage section), it may clearly state “finished basement”, with a significant contribution of value added to boost the appraisal amount.

In this example of a split level style home, the lower level on the left side would be considered a “basement” area, and the level adjacent to the garage would be included in the home’s square footage.

Here’s a second example of a raised ranch style home. The full lower level is considered “basement” in an appraisal report. The full upper level is the homes square footage, or gla (gross living area).

In the example below, the home is also a split level style, but the level on the left appears to be fully above grade.

The level on the right is just a foot or two below grade, and would therefore be considered part of the basement level.

The home below appears to have both the garage level and the left side level above grade, and both would be included in the living area measurements.

I hope this gives you a sense of what the appraiser is looking at in terms of calculating a home’s square footage. Every home is different, but you can see how grade level plays a role in how these spaces are defined and how they can impact the overall value.

RELATED: COMMON APPRAISAL QUESTIONS

• Above grade spaces are fully above ground level, while below grade spaces are partially or entirely below ground level.
• Understanding above grade and below grade spaces is important for accurate home valuation.
• Square footage calculations and reporting can vary among appraisers, tax assessors, and real estate agents.
• From an appraisal standpoint, your home’s gla will be based on the ANSI Standard Z765, which dictates how square footage must be calculated.
• Determining how much value a below grade area adds to your home is dependent on several factors, including the quality, condition, layout, and functionality of the space.

Above grade and below grade spaces can have a big impact on home value. By understanding the differences, you can make informed decisions when buying or selling a home, or when completing home projects in these spaces.

If you’re unsure of how to determine your home’s gla, call up an appraiser or real estate agent who should be familiar with how these calculations are determined.