Does a Finished Basement Add Home Value?
The short answer is yes, if it is done right. Adding more usable living space to a home will increase its value. And the cost of finishing a basement is cheaper than the cost of pouring a new concrete slab and adding onto the property. Depending on your community’s rules, you may not need planning permission to turn a basement into bedrooms or a general purpose living area, though you may need a permit to install a new bathroom. However, a refinished basement may not be the best way to spend your home improvement dollars. After all, the value of the space above ground is always greater than that below ground.
Let’s address a few of the common questions people ask when determining whether or not a finished basement will add value to their own homes or be worth the expense.
Should I Finish My Basement?
There are several factors that go into this question. One is the condition of the basement. If you have to invest significant money into preventing it from flooding or smelling like mold, the answer is likely no. If the basement is fairly livable, the answer may be yes. Another issue is what is considered normal for your area. If finished basements are common in your area, buyers will consider it just another part of the home. If you’re the only one that has a finished basement, few home buyers will pay more for it.
Then there’s the value of the living area you create there. A general purpose playroom or living room is generally appealing. Adding more bedrooms is always a plus. If you put in a personal movie theater or craft room, don’t expect to see the 70% ROI for the project you’d otherwise receive. The ROI of the project also depends on the type of finished basement.
Note that the longer you intend to live in the home and utilize the new living space, the less the ROI of the entire project matters. If it lets you stay in your current home for a few years more instead of moving to a bigger one, the answer is probably yes, you should finish your basement as long as it is done right.
The 3 Main Types of Finished Basements
The first type of finished basement is a walkout basement. This type of basement has some sort of access to the outdoors. This may be a sliding door opening onto a landing or a full patio with a set of stairs leading to ground level. These basements are popular for several reasons. The first is that it gives the basement natural light, and the more windows you can install, the better. The square footage in a walkout basement is so desirable that it is often graded as equal in value to above ground square footage in your home. The second is that you can leave through the walkout in an emergency. And last but not least, the walkout can give other residents of the home privacy. If the basement becomes a live-in apartment, young adults or parents could come and go as they please without tramping through the kitchen. In an ideal case, you can turn the basement into an apartment you could rent out for extra income, depending on local rules.
The second type of finished basement is the standard lot basement. This is the standard finished basement. There are the basement walls and the ceiling that consists of the floor of the home above. There is no natural light barring small windows at ground level. This type of finished basement adds to the least value of the home, assuming the environment is comfortable. In these types of renovations, watch out for the lighting level. Don’t let the space feel dark or it won’t add any value to your home.
The garden level lot basement is somewhere between the first two types of finished basement. It is partially above ground and below ground. It generally has windows but not a door to the backyard. The value of this type of basement renovation is in between the first two, as well.
What Is the Return on Investment for a Finished Basement?
One factor to consider is environment after the work is done. If the basement is damp, moldy or occasionally floods, it doesn’t matter if you put in premium carpets and added two bedrooms – no one wants to use the space and no one will pay more for the property. If you throw in cheap carpets, paint the concrete walls and call it a living room, few people will appreciate the work. If the finished basement looks like the house upstairs complete with quality carpets, full walls, properly functioning bathrooms and clear air, and it will be worth almost as much as the square footage above ground. Design elements matter in this area. If the upstairs has a contemporary look, the downstairs modern style clashes regardless of how stylish it is.
We’ve already mentioned the impact of community norms. If you’re the only one in the neighborhood with a finished basement, your home may be worth more if the renovation gives you much more usable living space. If finished basements are the norm for the neighborhood, your home is worth less than the competition if you don’t complete this renovation. If you’re able to turn a basement into a full apartment, this is definitely a plus. If it could be used as a mother-in-law suite, allows multi-generational families to share space without sacrificing their sanity or can be rented out as a source of extra income, you may reap 100% ROI on the renovation.
The average return on investment for a finished basement is two thirds to three quarters of the cost to remodel the basement. Try to do it yourself or take shortcuts, and the ROI is more likely fifty percent of the renovation cost or less.
How Much Does It Cost to Remodel a Basement?
The cost to remodel a basement depends on where the home is located.
The average cost for a modest renovation is $71,000. The price tag for a builder-grade renovation is higher, and a luxury renovation will be higher still. This mid-range renovation yields an average $50,000 increase in the sale price of the home compared to similar properties. This is an 86% ROI, highest in the nation.
Home owners in the Pacific pay an average of $84,000 to finish their basements, but they see a nearly $73,000 return on investment when they sell the property. Those living in the south central US in states like Texas and Oklahoma pay around $65,000 to finish a basement and receive around $53,000. This 80% ROI is second highest in the nation. Homeowners in New England pay around $77,000 to renovate their basements but only recoup about half that when they sell their homes. Home owners in the upper Midwestern states like Illinois and Wisconsin only recoup 53% of the remodeling cost.
Builder-grade and luxury remodels can cost much more. However, the more you spend, the lower the average return on investment.
How Do Appraisers Determine the Value of the Renovated Basement?
A standard rule of thumb is only counting basements above ground in the official assessment. This means a three bedroom two bath home with two more bedrooms in the basement is listed as a 3 +2 bedroom, 2 bath property in the MLS. Note that finishing a space and throwing in a bed doesn’t automatically make it a bedroom. There are minimum requirements such as having a window that someone can exit during a fire. There must be a certain amount of space in the bedroom. Interestingly, building codes don’t require that a bedroom have a closet, though home buyers expect one in almost every bedroom.
Suppose the finished basement meets the local building code. They will only use the finished space in their calculations. The finished space is typically worth half that of the above ground living space. This means that a thousand square foot basement with 500 square feet of finished space will be considered equal to 250 square feet of above ground living space. If the above ground space is worth $200 a square foot, your finished basement is worth $100 per square foot for all of the finished space. Your rough laundry room and storage area don’t count in this equation.
Don’t make the mistake of inflating your home’s value by considering the below ground space equal in value to the above ground space. You’ll end up overpricing the home, making it harder to sell. Or you’ll have buyers sue you for over-valuing the property, because the thousand square feet in the basement isn’t considered that valuable by the bank or local tax assessor.
General Tips for Finishing a Basement
Check with your local authorities. You probably need a permit to finish the basement, and you’ll always need one to be allowed to legally rent out the basement as an apartment. If you’re installing plumbing like showers and toilets, you’ll need the requisite permits. And this work should only be done by a licensed professional. Don’t skip the permitting process, since you’ll have to pay more than the price of the permit once you are caught. You will be caught when the home is inspected, since the inspector will verify that the work is permitted and was done correctly.
You’ll need to plan for the environment when selecting materials for the basement. While you may have a sump pump in the basement and tried to seal all the cracks, you really should use materials that won’t degrade if exposed to high humidity. This rules out hardwood flooring in any basement unless you live in Arizona. Vinyl, tile and good carpets are better. Insulated carpets are a plus if you live in a cold climate, since it prevents the cold from affecting the comfort of those in the basement.
Lighting design is essential, since you’re rarely ever getting natural light in the basement. Seven foot ceilings are the standard set by most building codes. Higher is better. And you’ll need to make sure the lights don’t create a hazard; recessed lighting is ideal, since it provides bright light without leaving a fixture someone could hit with their heads as they wander around. Ensure that doors are high enough for anyone to pass through. Be careful not to damage pipes or ductwork when trying to install a ceiling in your basement.
What you do with the space affects the value of the renovated basement. Generally usable areas like living rooms and bedrooms that could be converted into basements have general appeal. Dedicated libraries and offices are not as generally useful. Pay attention to what is common in your area. Your neighborhood may place a premium on indoor play rooms for the kids or guest bedrooms, while others may have made a large laundry room the norm. Choose relatively open floor plans to maximize the number of ways the space could be used. However, you shouldn’t damage load bearing walls, and infrastructure like boilers, furnaces and water heaters should be hidden from view though accessible for maintenance and repair.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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© 2019 Tamara Wilhite