Short answer
Not as above-grade living area. Fannie Mae requires appraisers to measure homes with the ANSI square footage standard, and HUD's FHA rules say finished basements aren't included in gross living area. If any part of a finished level is below grade, the whole level is reported as below-grade space on its own line. That space can still add value; it's just listed and compared separately.
Why does the appraisal differ from the listing?
A listing's square footage may be measured or counted differently from an appraisal. Fannie Mae's Selling Guide (B4-1.3-05) says appraisers must follow the ANSI Z765-2021 standard for above- and below-grade square footage on single-family homes, including townhouses. Condo units in apartment-style buildings are measured from the interior instead. So the appraisal's living area can be smaller than the listing without anything being wrong.
How are basements handled?
HUD's Handbook 4000.1 defines gross living area as finished, habitable, above-grade space measured around the outside of the house, and says finished basements and unfinished attics aren't included. When part of a finished level is below grade, such as a walkout basement, the appraiser generally reports the whole level as below-grade finished area, unless the local market treats it as partly below-grade living space.
What about Cape-style upstairs rooms with sloped ceilings?
Many NH Capes and older homes have upstairs rooms under sloped roofs. Under Fannie Mae's rules, finished space that doesn't meet the ANSI ceiling height requirements, or that you reach only through an unfinished area, is reported separately as nonstandard finished area. The appraiser explains why and still considers what it adds. Above-grade rooms in that space can still be included in the room and bedroom count.
Do garage conversions and additions count?
Under HUD's rules, a room addition or garage conversion counts as living area only if it's reached from inside the house in a functional way, has a permanent heat source, and matches the main house's design and quality. Otherwise it's a separate line in the appraisal. An accessory dwelling unit is never added to the main home's living area. Fannie Mae also asks appraisers to comment on additions built without a required permit. See unpermitted work and ADUs.
What can I do?
- Compare homes by above-grade living area and finished basement space separately.
- Give the appraiser a list of updates through your real estate agent and lender.
- If you think the appraisal missed something, see if the appraisal comes in low.
Sources
- Fannie Mae Selling Guide, B4-1.3-05, Improvements Section of the Appraisal Report (06/04/2025)
- HUD Single Family Housing Policy Handbook 4000.1, Update 18 (August 2026), Gross Living Area
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.