Does a finished basement add value to my home? Find out what appraisers look for and how you can maximize the return on your investment.
Many homeowners thinking about selling at some point, wonder if it makes sense to finish their basements. The short answer is: it depends. Before you decide, you need to consider the local real estate market, your lifestyle, and what your goals are for the project.
According to Remodeling Magazine, in 2017, finishing a basement netted a 70% return on the homeowner’s investment. If you plan on living in your home for a few more years, the enjoyment you get out of the extra space might be worth the 30% you don’t get back.
How Do Appraisers Factor in Finished Basements?
Houses with finished basements will appraise for more than those without, but values vary based on style. No matter what the grade level of a basement though, it will most likely never be valued equally with the main living space of a home.
However, basements and main can be valued the same or close. For example, if you live in a very high performing area like Sugar House, you can do well.
What Keeps a Basement From Being Counted in the Square Footage?
- It’s not finished
- It’s not heated
- It is totally underground (and in some cases, partially underground)
When Does Basement Count as Square Footage?
SF is separated into 2 categories: Gross Living Area and Basement Area
There are basically three types of basements:
- Full vs partial Basements. These are usually the basements you’ll find on flat lots. All the walls are the same height, and the whole basement is below grade.
- Walk up’s. These basements work well for moderately sloping lots. Part of the basement is above grade and part is below.
- Walk-out Basements. These basements are often found on sloping lots. A good portion of the basement is above grade with windows and doors.
GLA (Gross living Area ) is the amount of square feet above grade. Or all finished square footage above grade (above ground).
However, appraisers do talk about the basement area in a separate area of the report. It does count, and it’s measured the same, but it’s reported in a separate part of the report.
Now, will they have the same valuation if a home has 6 bedrooms above grade, vs a home that has 3 below? That depends. Most likely you’re appraiser won’t consider those two properties as comparable. They’ll try to avoid that situation and find a comparable home to compare value.
How Useable Square Footage Affects Appraisals
The easiest way to think about square footage is that it has to be livable to count. If there are areas in the basement where you have to crouch down to get through, these areas might be considered a crawl space, which do not count towards your SF. it doesn’t count as square footage. For square footage to count, the area must be habitable. That includes height, heating, and windows.
How Square Footage Affects Financing
For appraisers, square footage is a part of determining value. The same is true when it comes to lenders. That’s why it’s so important that you understand how these areas are measured and reported .
So how does square footage affect financing? If you have an unfinished basement, it does affect your value because the appraiser is going to pick houses that don’t have finished basements as well and that affects how much it will appraise for. It also depends on how much the buying market will pay for a finished basement. But there are times where the buying market doesn’t care about finished basements.
Factors That Affect the Return on Your Investment
Real Estate Market
Does a finished basement add value? Your basement will be worth more or less depending on where in the country you live. In areas where basements are common and space is at a premium, basements add more value.
It’s never a good idea to overdo when it comes to basement materials but you don’t want to under-finish your basement. One example: nobody wants to see 5 inch baseboards on the main level only to go to the basement to see 3 inch baseboards. There’s no point spending money on the same grade materials you would use on an above-ground remodel. Good quality but moderate costing materials and fixtures will give you the best return on your investment.
Rather than finish your basement with closed off rooms, opt for a more open floor plan. Since natural light is at a premium or non-existent, flexible space will yield a higher return.
Tips For Increasing the Value of Your Finished Basement
Get an affirmative answer to the question: “does a finished basement add value” by following the simple tips below.
One in fifteen homes in the U.S. has elevated radon levels. Radon can cause lung cancer. It’s worth the cost (usually less than $1000) to have your basement tested for this toxic gas. If you decide to sell, it will give potential purchasers a sense of relief that they don’t have to worry about radon.
Install hard flooring
High end flooring is not the way to go for basements. For one thing, basements can flood. For another, natural occurring moisture can cause warping of hardwoods and musty smells in carpet. Your best bet is to opt for ceramic or stone tiles to get the most return on your investment.
Create the illusion of light and space
Recessed is a good option for basement lighting. You can add LED lights under cabinets and flush against ceilings to add warmth. If you’re not satisfied with drop ceilings, leave the beams and ducts exposed. Painting them white will make the area appear more spacious.
Include an in-law suite
Multi-generational living is becoming more and more common. The rising cost of assisted living will only make the numbers increase. That’s one reason in-law suites have become so much in demand.
Adding a bedroom, bath, and kitchenette will raise the value of your below-grade basement without the permits building a stand alone structure on your property would require.
Create a welcoming outside entry
Since natural light is at a premium in basements, install glass, double outer doors and a small patio. The glass has to be thick enough to insulate and the frame sturdy enough to withstand the elements and provide plenty of security.
Cement is preferable to wood for the patio floor, and some easy maintenance greenery will add a touch of nature to the inside.
The Regional Cost for Value of Remodeling
The answer to “when does a finished basement add value” depends in large part on the region of the country you live in. According to a Remodeling Magazine 2017 report, an average grade remodel (meaning the materials used were neither luxury or builder grade) cost just over $71,000 and recouped almost $50,000 (or 70%). Below are three varying examples of the value added.
This area gets the biggest return on investment at 86.4%. The average cost for a basement was about $84,000.
New England Region
At 52.8%, this area has the lowest return on investment, and the average cost runs around $76,400.
South Central West Region
This region of the country has the second highest return on investment at 80.8%. The average cost of a basement remodel is slightly less than $65,000. (Regional cost for value information courtesy of Zillow.com)
Learn More About What Constitutes a Finished Basement
For the question “does a finished basement add value” to be answered yes, your basement must be finished using the same quality standards as the rest of the house. That includes the walls, the floors, and the lighting. If you’ve done all this, you can argue that the added value and square footage should be counted, and you can answer yes to”does a finished basement add value?”
Concrete walls and indoor/outdoor carpet won’t convince an appraiser to include it in the square footage of the house. Appraisers also won’t be impressed if you use space heaters instead of heating the basement in the same way the above-level rooms are heated.
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