Per Fannie Mae guidelines, any area below grade (that’s any wall of the house that is even partially underground) is to be given credit as a basement. It does not matter how high the ceilings are, if it is completely finished, or even how much money you’ve invested in this area. The idea is to compare apples to apples or above grade sqft to above grade sqft and homes with below grade (basements) to below-grade homes.   Think about the cost to build the roof, the exterior finishings, the windows, doors, and siding of the above grade or first floor compared to the lack of those elements for a basement area. We attempt to reflect those differences in the report and given credit for the level of finishing in the basement and its rooms. The only exceptions are lake homes (built into a hill and are typically considered to be two levels on a slab) and occasionally a split level home with the kitchen in the lower level.