Many home sellers, and even homeowners who are just thinking about selling in the next few years, wonder if going through the time and expense of finishing a basement is a value-add improvement. Generally the answer is yes, but that doesn’t mean that a finished basement is always the best way to invest your home improvement dollars.
In terms of home value, finished basements aren’t as valuable as main-floor living space and above-grade bedrooms (“above-grade” refers to a room that’s located higher than ground level — that could mean on a main floor or upstairs, just not in a basement). A main-floor addition will likely be more valuable than a finished basement, but the expense could be much higher.
Should I finish my basement?
Whether you should finish your basement depends on your lifestyle, your local real estate market and your goals in finishing the space.
For example, let’s say you’re a movie buff and don’t plan on selling for another few years. Building a home theater in your basement might well be worth it. You’ll see an average 70 percent return on investment, and the 30 percent you don’t make up might feel worth it when you consider the years you’ll be able to enjoy the basement theater before selling.
Types of finished basements
There are three primary types of finished basements. Which type of basement renovation you choose varies based on your home’s existing structure and how much money you are willing to spend.
Generally the most attractive to buyers because of the amount of natural light, a walk-out basement has a full-size door (often a slider) that leads to outdoor space, like a backyard or patio. This type of basement is more like a ground floor (due to a property with at least 6 feet of slope from front to back), which also allows for bigger windows and more natural light — something buyers love.
In a home with a walk-out basement, the main floor will be at street level in the front of the home but elevated from the back, often with a porch or deck.
Standard lot basement
This is what you may think of when you picture a traditional basement. A standard lot basement is underground, with concrete basement walls and no natural light other than small window wells near the ceiling.
A standard lot basement usually pushes the main level a few feet above ground, so there might be a couple of steps to get down from the main floor into the backyard. Given the lack of natural light, a standard lot basement is less attractive to buyers at resale.
Garden-level lot basement
A middle ground between a standard lot basement and a walk-out basement, a garden-level lot basement is partially above ground and partially below ground, due to a somewhat sloping lot. A garden-level lot basement may have a combination of full-size windows and small window wells, but it’s not likely to have a door to the backyard.
Finished basement return on investment
As with any big renovation, it’s important to note that when finishing a basement, you may not recoup all of your investment. It’s usually advised to finish a basement for your own enjoyment, then recoup some of the money spent down the road when you decide it’s time to sell.
That said, there are buyers that actively seek homes with finished basements. And in a competitive buyers market, your home can really stand out among other for-sale homes if it is one of only a few with a finished, functional basement.
How appraisers evaluate finished basements
If selling is on your mind, you’re probably thinking about finishing your basement for resale and marketing purposes, not for personal enjoyment. In that case, understanding how home basements are appraised will give you a better understanding of how it will impact your home’s overall value.
First, to understand how appraisers calculate value when it comes to basements, you’ll need to know three key terms:
Above-grade: Above-grade refers to a room or living area that is not in the basement. It’s located above ground level. Below-grade: Below-grade refers to rooms or living areas in the basement, or below ground level. Gross living area: According to the Appraisal Institute, the gross living area is the total area of finished, above-grade residential space. It is measured using the perimeter of the house and only includes completed, habitable and above-grade living space, so note that your finished basement will typically not be included in this figure.
Appraisers may start with a rough gauge of the price per square foot of your house, and how much of your home is above-grade versus below-grade can make a difference. Below-grade living space is worth about half that of above-grade living space.
So, if the price per square foot in your area is $150, your basement price per square foot would be $75. Appraisers may also calculate the price per square foot for the entire home, then divide it by the gross living area.
Another thing appraisers do is run comps, using similar homes in your area that have sold recently to identify the correct value of your home. When appraising a home with a basement, skilled appraisers will only compare homes that have similar amounts of above-grade living area.
For example, if your home has 1,500 square feet of above-grade area and 500 square feet of basement space, an appraiser wouldn’t compare it to a home with 2,000 feet of above-grade living area. So, if you’re doing your own research on comparables, make sure to keep this in mind to avoid overpricing your home.