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This week I ran into a big problem with what should have been a kind of run of the mill single family appraisal in the Marigny Triangle.  Like many homes in this historic district this creole cottage has a rear former slave quarter, now a guest house.  The home itself was 1800 square feet and the quest house was almost 800 square feet.  On the MLS sheet that list the "Apprx SqFt Living Area" the agent mistakenly added the two square footages bringing the total living area square footage to 2600 square feet.  At a selling price of approximately $500,000 there were three perfect comps for homes with 2500+/- square feet.  The problem is that appraisers, underwriters and the secondary market do not consider the outbuildings square footage as part of the total living area square footage.  So, in reality, I was faced with an 1800 square foot house with a guest cottage that could not possibly appraise at $500,000. 

And no, I cannot just use the price per square foot utilized for the main house on the guest house.  The guest house must be treated as an amenity, or a line item on the appraisal, like an in ground pool.  Line items generally cannot be over 10% of the cost of the home.  This means the MAXIMIUM amount I could realistically add to the opinion of value for this home is $50,000 without causing underwriters to start seriously questioning the appraisal.  So, agents, please be careful.  The living area square footage is ONLY the enclosed square footage heated and cooled that comprises the main building (usually the home itself).  The square footage of the guest house should be placed on the MLS line "Apprx SqFt Total area" only!  And the number of bedrooms/baths should be those only in the main house.  You can mention that the guest house has one bedroom/one bath in the MLS notes, but not merge the two buildings' amenities.  Luckily, in this case we were able to make the sale work because the buyer liked the subject enough to make up the shortfall in cash.  But avoiding this potentially explosive situation will save you lots of worry, angry clients and the prospect of liability.