Does a Finished Basement Add Home Value?

Does a Finished Basement Add Home Value?

Finishing a basement takes a lot of work. While can add a significant amount of living space, finishing a basement is a time consuming and often expensive home improvement project, leaving many homeowners to wonder: is finishing the basement is really worth it?

Read on to find out a few things that every homeowner should consider before taking the plunge into a basement remodel.

Should I finish my basement?

The answer to this question varies from person to person. It depends on what type of basement space you have to work with, the goals for your space and even on the local real estate market.

In terms of home value, finished basements aren’t as valuable as main floor living space. The amount of value a finished basement has depends greatly on the kind of basement you’re working with. There are three primary types of basements, and each one has a different valuation.

Standard Lot Basement

A Standard Lot Basement is a traditional underground basement. Standard lot’s typically have concrete walls and let in little to no natural light (they’ll have small windows near the ceiling, at best). Given the lack of natural light, a standard basement isn’t as attractive to buyers at resale, so any home improvement project here should be done primarily for the use of the existing owners.

Garden-Level Basement

Garden-level basements are partially above ground basements, normally due to a sloping lot. Although they won’t have a door to the backyard, Garden-level basements often have more natural light, meaning that they can be refurbished into productive living space more easily. Garden-level basements can make for great games rooms, home offices or guest bedrooms amongst other things, and finishing them will usually add a good amount of value to the home.

Finished Basement and Home Value

Walk-Out Basement

The most valuable type of finished basement space is referred to as a Walk-Out Basement, due to the ability to walk outside from the space. These types of basements usually have a full sized, sliding-glass door that both lets in natural light, and allows the homeowner to walk directly into the backyard or onto a patio. In the case of sloped properties, the basement is almost like a ground floor, making it more likely to be considered as traditional living space. In fact, in some markets, the MLS will count walk-out basements as above-ground space when it comes to calculating the price per square foot, making the conversion truly a valuable project – but we’ll talk more about that later.

As an investment, Finished basements still only return around 70% of the invested value. If your main goal is to increase property value for a short sale, you’re still better off putting your resources towards a main-floor addition – they’re often more expensive to complete, but the immediate return is much higher.

If you’re looking to increase your living space for personal use anyways, then finishing a basement might be worth the expense. If you’re adding a home cinema, or need a larger playroom for the kids for example, the 30% you lose in investment is made up in personal enjoyment, and the increase in property value is simply an added bonus.

The ROI of a Basement Remodel

Remodeling your basement is really only a good idea if you’re okay with losing a little bit of money in the process. However, how much you stand to gain from the investment depends heavily on what market you are in. In a competitive buying market, a functional basement can make your home stand out amongst the crowd.

According to Remodeling Magazine’s Cost vs. Value report in 2017 a mid-range basement remodel costs an average of $71,115, and recoups $49,768, or roughly 70%, upon resale. However for homeowners on the Pacific region – think California, Hawaii, Washington, Oregon and Alaska – a basement remodel returns an average of 86.4%.

Homeowners in the West South Central region of the United States, including Oklahoma, Arkansas, Texas and Louisiana, see the second-highest return on finished basements at 80.8%. Yet in New England and the Mid-Northern states ( Wisconsin, Illinois, Indiana, Michigan and Ohio), homeowners should think twice before starting an expensive remodel. In these two regions, the return on investment for a finished basement drops dramatically, to only 52.8% and 53.3%, respectively.

What’s the Value of a Finished Basement?

If selling is on your mind and your basement project is for resale purposes, you’ll want to understand how appraisers value a finished basement. This will help you better gauge the what impact your remodeling project will have on the overall home value. Let’s start with a few key terms you’ll want to know.

Above-Grade

“Above-grade” refers to a room or living area that is located above ground level. This can be any floor above the basement.

Below-Grade

“Below-grade” refers to and rooms or living area below ground level. It’s the term most often used by appraisers for basement space.

Gross Living Area

The “Gross Living Area” is the total of all finished, above-grade residential space. It is measured along the perimeter of the house, and only includes completed, habitable areas above ground level. With some exceptions, finished basements are typically not included in this figure.

When valuing your house, many appraisers start with a rough gage of the price-per square foot based off of other comparable homes in the area. Above-grade square footage is valued at that rate, while any below-grade spaces, such as your newly finished basement, is generally considered at half of the value per square foot. Meaning that if the price per square foot in your neighborhood is $150, a finished basement will only add an extra $75 per square foot to the total value.

Alternatively appraisers might calculate the price per square foot for the entire home, including below-grade spaces,and then divide it by the gross living area (the above ground spaces). This increases the value of the above-grade spaces, while discount the below-grade spaces entirely in the official appraisals.

Other appraisers prefer to use comparative home pricing to identify the value of your home. If your house has 1,500 square feet of above grade and 500 square feet of basement space, then the appraiser might choose to look at other, similarly sized homes in the area to determine a relative value. They will only determine relative value of similarly sized homes, so this sort of valuation only works when there are similar properties nearby with the same general amount of above and below ground living spaces.

You can use any of these three methods on your own to get a relatively good estimate of what value a finished basement project will add to your home in terms of resale value.

Tips for Finishing Your Basement

Once you’ve decided if that you’re going to finish your basement, there’s plenty of things to take into consideration to ensure that the project goes smoothly, and that the result is worth your while. Here’s our short list:

Choose your Function

Ever space should have a function, so before you do any other planning you’ll need to think about what your new basement’s function will be. If you’re finishing the space for personal use, then your lifestyle will be the main consideration. If your remodeling project is for resale value, then it’s best to look at what’s selling in your market. Remember that the style, look and quality of the basement remodel should complement the rest of your home to ensure that it adds the most value possible.

Design & Layout

Creating a layout for a basement space has a few unique challenges. Basements often house water systems, electrical boxes or the furnace, for example, meaning that whatever plan you make will have to work around these elements. While open floor plans are all the rage, there could be some load bearing beams in the way that you’ll need to work around. You’ll also want to think about maximizing lighting whenever possible. Talk to your contractor about what is feasible in your space, and work with them to design a layout that both fits your functionality needs and works around the obstacles that might be found in your space.

Prioritize Light

Light might be the most important part of any basement remodel. The more light you can let into the space, the more attractive the space will be to potential buyers, and the more enjoyable the space will be to use. Even if you can’t create a walk-out basement, you still need to focus on a good lighting plan to keep the space from becoming too dark and dingy.

Check your Ceiling Height

In basements, the higher the ceilings, the better. Basements often battle against low ceilings, due to pipes and ductwork, but high ceilings help to lighten the space, so do your best to maximize height whenever possible. Even if you can’t aim for high ceilings, be sure that you have at least seven feet of space before remodeling – it’s the minimum required for standard building codes.

Smart Flooring

Basements have two major issues: a lack of natural light, and moisture. We’ve already covered the former, and as for the latter, the increased moisture will influence your choice for flooring materials. Moisture can cause wrapping and gapping in hardwood floors, and can make a space feel colder than it is. If you live in a cold climate, Consider installing high quality carpet or carpet tiles to keep the space cozy and warm; or if you’re in a warmer climate, a look for a good quality vinyl.

Get Permitted

As with any construction project, you need to check the local laws before getting started, as you’ll most likely need a permit for your remodel. While some homeowners are tempted to skip the permitting process to avoid the expense, it’s not recommended. Renovations without permits can be a big red flag for buyers during a home inspection or disclosure process, sometimes causing them to want to renegotiate or even walk away from the deal.

Completing an unfinished basement isn’t as simple as just adding some drywall and flooring. It’s a time consuming and costly project, but in many cases it’s worth the return. If you’re going to be enjoying the space prior to selling your home, finishing your basement is nearly worth the trouble.