It's a measurement rule, not a swipe at your work. Gross living area, GLA, means finished space that's above grade. If any part of a level is below the surrounding ground, that whole level is counted as below grade and reported on its own line, no matter how well it's finished or how many permits you pulled. Most lenders doing conventional loans require the appraiser to measure to the ANSI Z765 standard, which is where that above grade rule comes from, so confirm with your lender which standard applied to your report.
Below grade finished space still gets value. It shows up as a separate adjustment rather than being folded into the square footage, and the size of that adjustment is supposed to come from what buyers in your market have actually paid for comparable finished basements, not from a fixed percentage. So $60,000 of finish work can support a $25,000 adjustment if that's what the local sales show.
The part worth knowing for next time: cost and value aren't the same input. An appraiser is reporting what the market pays, and money you spent on a below grade space rarely comes back dollar for dollar. If you think the adjustment is unsupported, the useful challenge isn't your receipts. It's closed sales of houses in your area with similar finished basements, showing a wider spread than the appraiser used. Ask the lender how they handle a reconsideration of value, since the process differs by lender and by state.
