Under Fannie Mae B4-1.3-05 measurement/reporting policy, a townhome’s finished lower level is partly below grade along its perimeter and has walkout access. The qualifying main and upper levels are entirely above grade. How should the lower level be treated for the above-grade area comparison?
Correct Answer
A) Report the lower level as below grade; include the upper levels
Under the cited Fannie policy, a level is below grade if any portion is below grade, regardless of finish or walkout access. Therefore the partly below-grade lower level is reported separately; do not include 90% of it in finished above-grade area. The qualifying main/upper levels are above grade. Separately reported lower-level space may still contribute substantial value.
Why This Is the Correct Answer
Option A is correct because Fannie Mae considers a level to be below grade if any portion of it is below grade, regardless of finish quality or window area. A walkout, partially below-grade area with finished rooms is not included in above-grade square footage or room count. The main and upper levels are entirely above grade, so they are included.
Why the Other Options Are Wrong
Option B: Include the whole lower level, because most of it is above grade
Option B includes the whole lower level because most of it is above grade. The cited rule treats a level as below grade if any portion is below grade, so being mostly above grade does not qualify it.
Option C: Include exactly 90% of the lower level as above-grade area
Option C includes exactly 90% of the lower level as above-grade area. The policy provides no percentage allocation; the partly below-grade level is reported as below grade.
Option D: Count the lower level as above grade if it has at least two outside exits
Option D counts the lower level as above grade if it has at least two outside exits. The number of exits does not change the classification; any portion below grade makes the level below grade.
Any Below Means Below
If any part of the level sits below grade, the whole level is reported as below grade.
How to use: Use this rule on walkout or split-level questions under the cited Fannie Mae policy.
Exam Tip
Under this Fannie Mae policy, finish quality, windows and walkout doors do not move a partly below-grade level into above-grade area.
Common Mistakes to Avoid
- -Counting walkout levels as above-grade area
- -Applying a percentage split to a partly below-grade level
- -Assuming below-grade space has no value
Concept Deep Dive
Analysis
This question tests Fannie Mae's rule for classifying a partly below-grade level. Under the cited policy, a level is below grade if any portion of it is below grade, regardless of finish or walkout access. The lower level is therefore reported as below grade, while the fully above-grade main and upper levels count as above-grade area.
Background Knowledge
Fannie Mae separates above-grade living area from below-grade area so that comparisons are consistent. Walkout and garden-level spaces are common sources of confusion because they may look above grade from one side. Below-grade finished space is reported separately and may still contribute value.
Real-World Application
An appraiser measures a hillside townhome whose finished lower level opens to a rear patio but is buried along the front. The appraiser reports that level as below-grade finished area and adjusts for it separately from the above-grade living area.
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