Finishing the Basement: Does the value equal the cost?
How much value does a finished basement add to my home? Realtors struggle with this question all the time because homeowners love the idea of building equity.
While finishing the basement certainly adds to the value of a home, it’s not always as significant as you might think.
According to Remodeling Magazine, the national average for recouping basement finish or remodeling cost is 79%. While there are certain parts of the country that see a positive return on every dollar spent finishing a basement, that’s the exception, not the rule.
Here is a look at at a Job Cost vs. Resale Value done by Remodeler Magazine. This data is based on an identical level of finish and the return recouped on that job at the time of sale.
|Market||Job Cost||Resale Value||Cost Recouped|
|Los Angeles metro||47,834||62,084||130|
|Orange Cty, Calif.||47,532||40,333||85|
|New York metro||46,483||42,426||91|
|Fairfield-New Haven, Conn.||42,975||56,446||131|
|Salt Lake City||37,298||26,300||71|
|San Francisco metro||51,428||68,659||134|
(Courtesy Remodeling Magazine)
So on average every $1.00 spent on a basement remodel or finish will return $0.79 when you sell. This is not a great investment, but depending on your situation it might be an acceptable one.
Why Finish the Basement?
Many people choose to simply ride the wave of appreciation and never even look at finishing their basement as a way to gain equity in their home. If you know you are going to be selling your home within a few years, there are a couple of advantages to NOT finishing your basement.
The first benefit is that it keeps the price of your home lower than your competition with finished basements, appealing to a wider range of buyers. Additionally, home buyers love the idea of an unfinished basement, it represents an opportunity to create something without having to build an entire house.
If you are going to finish your basement, it is important to have a clear purpose or reason for the project. There are three primary motivators for finishing a basement; Need, pleasure or resale.
Do you need extra living space for a growing family? Is your pleasure watching movies, sports or doing crafts? Are you looking to update and think the added finished space will increase the value of your home?
These are all good reasons to finish a basement, it’s just important to have a clear picture of why in order to help define the scope and cost.
What is the Cost of Finishing a Basement?
Below grade square footage is less expensive to finish than comparable above grade square footage. In general, the cost of finishing a basement is 1/2 to 1/3 the cost of adding a main floor addition. Much of the cost savings is realized because the existing foundation walls eliminate the need for exterior cladding, windows and much of the framing required for above grade square footage.
This makes the basement a perfect place to add square footage without breaking the bank. It is important though to keep the cost of your project in the appropriate relationship to the overall value of your property. In other words, don’t over improve your basement.
What is the Value of a Finished Basement?
You need to consider value before starting any basement finishing or remodeling project. At the end of the day, the value determined by the appraiser is what your home will ultimately sell for. Talk with an experienced Realtor before finalizing any plans for a basement finish or remodel.
Appraisers treat below-grade square footage differently than above-grade square footage. It’s important to note that appraisers don’t even count below grade square footage in the total square footage of your home for the purposes of the appraisal.
The Appraiser does give credit for below grade space, but at a lower value and with an eye on quality and functionality.
The appraised value of finished basement space is generally 50% to 60% of the value of the main level square footage. To maximize the cost/value ratio, the market experts recommend keeping the basement budget below 10% of the existing home’s value. Staying between 5-10% is a good plan.
Can You Increase the Value Ratio?
The job of appraising is always dependent on saleable features. But keep in mind the finished basement will never reach par with its main floor sibling. High-end finishes have little value if natural light and low ceilings make the space dark and crowded.
The more the basement resembles “normal” living space, the higher the relative value. Basements don’t necessarily need to be completely underground. Any portion of the basement that is above grade is actually valued at a higher rate than those portions below grade.
Why a Basement?
Let’s take a look at the different types of basements and some fundamental information about basements.
Basements are a popular type of foundation, especially in colder climates. The depth of the basement walls provides protection from frost to the foundational footers. Frost can crack and destroy footers and subsequently lead to serious foundation problems.
The minimum depth for frost mitigation is generally 36 inches below grade and in more extreme cases 42 inches. The 8 to 10-foot wall heights of a modern basement more than keep those footers safe and warm.
Different types of Basements:
There are essentially three types of basements. Full basement, Garden level basement, and walkout basement. The type of basement you end up with is dictated by the Contour of your building site.
Full basement – This is the most common type of basement. You will generally see this very flat Terrain. The wall Heights for this basement are the same all the way around. In other words, the entire basement is below grade, therefore, receiving a lower value on an appraisal.
Garden-level – This type of basement features some above grade square footage. Windows in this basement may be partially above grade. these basements receive more natural light and because some portion of the basement is above grade they are valued at a slightly higher rate than the full basement.
Walkout basement – As the name suggests this basement allows egress in and out of the lower level of the home. We generally see this Foundation type on a sloping lot. There are variations on the walkout basement, the doors can be on the side or the back of the house. because a large portion of this type of basement is above grade the walkout basement carries the highest dollar credit on the appraisal. Generally, these basements offer significant natural light and create options for enhanced outdoor living due to easy access to the backyard.
Concerns About Basements
There are certain concerns homeowners need to be aware of when it comes to basements. It’s important to keep in mind that your basement is for the most part underground. So, the primary concerns revolve around things like flooding from water and infiltration from gases like radon.
Flooding in the Basement
One of the biggest concerns we see about basements is flooding. Generally, flooding occurs in one of two ways: natural or man-made.
Let’s start with man-made since most of the plumbing for your home starts in the basement and most of the wastewater leaves your home for the basement, this concern is valid.
There are concerns about drain and sewer backups. it’s important when building your home or prior to finishing your basement to look at these systems and make sure there are fail-safe mechanisms in place to protect your investment.
Water heaters are another concern for flooding in basements. Cracked water heater tanks can create a real mess soaking carpets, baseboard and in some cases sheetrock. Once again your contractor can set up drain and pan systems to prevent this from happening.
Nature also presents some serious concerns for homeowners. Most modern homes with basements pay special attention to drainage around the foundation of the house. Proper grading and Swails are established in order to keep water away from the foundation.
If the home has a basement, there should also be a perimeter drain along the outside of the foundation walls and just below the slab. This drain is installed to move any water away from the foundations’ footers and out to the storm sewer.
In the event this doesn’t drain fast enough, the builder might install a sump pump. This pump sits in a pit below the perimeter drain and pumps water out and away from the foundation.
Radon in the Basement
Radon is another concern for many when it comes to living in the basement. Radon is a colorless odorless gas that occurs as a byproduct of the breakdown of certain minerals. Radon according to the EPA, is the second biggest cause of lung cancer.
Testing for Radon is a very simple process and mitigating the gas from your basement living space is very common. So, if your test results come in above EPA acceptable levels it’s not the end of the world.
It’s important to note that Radon is a very controversial subject and there are a wide range of opinions as to its effect on humans. At the end of the day when it’s time to sell your home, it’s not your opinion that matters it’s the opinion of the buyer.
Given the cost and ease of installation of modern radon mitigation systems, it makes sense to add this to your basement before starting construction.
The planning stages of any basement project are where dollars are gained or lost. This is the time to seek help from professionals. Realtors know what sells and a good general contractor we’ll know what things cost. Use these types of professionals to make sure you don’t overbuild your basement or make it so highly personalized that you’ll have problems when you go to sell.
There are certain guidelines you’ll want to follow as you think about the process.
The Top Five Basement Trends
Trends come and go but the trend of a finished basement is becoming a norm. The following five trends illustrate the evolving role of the basement in everyday life.
The Open Floor Plan – The open concept has re-defined the family’s main living space for the last two decades. Now its popularity has migrated to the basement, making use of the natural expanse – maximizing the use of available light and air flow. Additions like a mini-kitchen or bar enhance the comfort and use.
The Main Living Extension – In years past, the finished basement was a land of experimentation. Bold colors, exotic décor, themed spaces and over-stuffed recliners have been replaced with the refinement and design found on the main level. Wider staircases create a visual invitation as well as a common connection.
The In-Law Suite – Bedrooms and a bathroom have long been a staple in the finished basement designed for a growing family. The allure of the master suite has migrated south. The convenience, amenities, and comfort of the en-suite bedroom is perfect for guests and visiting parents.
The “Specialized” Room – With the popularity of the open concept, specialized rooms have found their niche. The Media Room, the Musician’s Audio Room, the Workout Room or Craft Room all have their unique fan clubs. Each is specialized, and if true to their descriptor, will bear unique expenses. Word of advice – the more specialized the room, the more costly and the less likely the re-sale will match the dollar investment.
The Walkout – Although the walkout basement is a natural for a sloping site, more and more homeowners are investigating this possibility. The abundance of light streaming into an otherwise dark basement easily convinces many of the potential. Remember – a talented, experienced contractor should be the FIRST call!
Finishing a basement wisely and well can have as much as a 70% payback, making it one of the smartest re-modeling or new home extensions. As exciting as finishing a basement can be, remember this is a major construction project. A building permit is REQUIRED. Throughout the process, electrical, plumbing, energy, drywall hanging, framing, and windows are inspected to meet CODE.
Finally, when it is time to sell, it’s important to work with a Realtor that understands valuation and appraisal practices. When pricing your home the agent should use comparable sales. If these comparable sales have finished basements, adjustments need to be made plus or minus in order to account for any differences.
If your agent doesn’t know how to do this you should consider this a major red flag. Incorrectly pricing your home based off of finished basement square footage can become a real issue during the appraisal process. The appraisal occurs pretty far into the closing process and having to renegotiate the sales price at this point can cost thousands to tens of thousands of dollars.
Make sure you work with someone that understands how to Value basements across comparable sales.
- Does a Finished Basement Add Value to My Home – Bill Gassett
- Appraisal Guidelines for Finished Basements – Tom Horn