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How Much Does a Finished Basement Add to Home Value?


finished basement with table and stairs

With the outbreak of the coronavirus pandemic, many American families found that they were spending a lot more time at home than usual. This led many of them to consider moving to more spacious properties or thinking about improvements they could make to their existing house to improve their quality of life during stay-at-home orders and social distancing.

At the same time, the housing market in many locations was incredibly competitive. Low interest rates, low inventory, and climbing prices led to bidding wars in markets across the country.

For many families, improving the home they already owned was a much more practical option than jumping into the insanity of this seller’s market. One way that you can add more living space to your home without physically adding to the structure is with a finished basement.

If you’re considering this type of project, you’re probably wondering about how much a finished basement adds to home value. Let’s take a look at everything you need to know.

The Different Types of Finished Basements

There are three different main types of finished basements. The existing structure of your home as well as your budget will determine which of these styles makes sense for you.

Standard Lot Basement

This is most likely what first comes to your mind when you think of a regular old basement. Standard lot basements are underground and only get natural light through small windows that are up near the top of the concrete walls.

This type of basement usually extends above the ground by a few feet. This means that there can be a few steps to get from the backyard to the main floor of the house.

This particular type of basement is not usually as attractive to buyers as these other kinds when it’s time to sell your home.

Walk-Out Basement

Walk-out basements are usually the type of basements that buyers like the most. This is because they usually offer quite a bit of natural light and have a full-size door that leads to outdoor space. The door used is often a slider.

This kind of basement is actually more like a ground floor than a basement. They are typically found on properties where there is at least six feet of slope between the front of the property and the back of the property.

More natural light and bigger windows can be found in this type of basement versus a standard basement, which is usually very attractive to buyers.

Usually, the main floor is at street level at the front of the house. In the back of the house, the main floor is elevated and often has a deck or a porch off the back. It’s worth noting that walk-out basements are counted as above-grade when it comes to determining square footage in some markets.

Garden-Level Lot Basement

This is basically the halfway point between a walk-out basement and a standard basement. Partially below ground and partially above ground due to a lot that slopes slightly, this is a middle-ground option. This type of basement doesn’t usually have a door to the backyard but might have a combination of small window wells and full-size windows.

Finished Basement ROI: How Much Does a Finished Basement Add to Home Value?

It is important to understand that you might not recoup all of the money you put into a basement renovation. This is the case with pretty much any big renovation you make.

The general advice given is that you should finish a basement if you want to for your own enjoyment and quality of life. It is then an added bonus that you can get some of that money back when you decide to sell sometime in the future.

There are some buyers, though, that do actively seek a house that has a finished basement. You might find that a finished basement add can help your house stand out in places that have a competitive buyers market if it is one of the only properties with such a feature.

If you are mostly interested in increasing home value rather than creating more living space for your own enjoyment, check out this guide for how to increase home value.

Factoring in Location When Thinking About Renovations For Basements

According to a report from Remodeling magazine, the average national cost for a midrange basement remodel in 2017 was $71,115. This same report stated that roughly 70% of this was recouped at resale (amounting to $49,768.)

A midrange basement is considered to be one that used materials that aren’t luxury but also aren’t basic or builder-grade.

Location is also an important factor when thinking about whether or not a finished basement will lead to increasing home value.

For example, the biggest finished basement ROI can be found in houses in the pacific region. This includes California, Oregon, Washington, Hawaii, and Alaska. In this area, the average finished basement add can get an ROI of 86.4%, though the average cost of remodeling a basement is more expensive here than the national average ($84,062).

The second-highest return on investment for a finished basement can be found in the west south-central region of the U.S. This includes Texas, Louisiana, Arkansas, and Oklahoma. The average return on investment is 80.8% with an average remodel cost of $64,827.

The lowest return on investment can be found in New England. This includes Massachusetts, Connecticut, New Hampshire, Vermont, Maine, and Rhode Island. The average return on investment is 52.8% and costs, on average, $76,429.

Midwestern states including Ohio, Michigan, Indiana, Illinois, and Wisconsin have the second-lowest return on investment at 53.3%.

(Are you interested in selling your house but you don’t want the process to take forever? Take a look at this article about how to sell your house fast.)

Appraisal Evaluation of Finished Basements

If you are thinking about finishing your basement strictly for resale value and not for your own enjoyment, you will want to learn more about how appraisers view finished basements.

There are three terms you will want to learn in order to understand how value is calculated by appraisers. These are:

  • Above-grade: This refers to living areas that aren’t in the basement and are above ground level
  • Below-grade: This refers to living areas that are below ground level or in the basement
  • Gross living area: This is the total amount of above-grade residential space that is finished

To determine the value of your home, an appraiser might start with a rough estimate of your home’s price per square foot. The amount of living space that is below-grade and above-grade will have an impact on this initial estimate. Above-grade living space is typically worth about twice as much as below-grade living space.

Basically, that means that if the price per square foot in your location is about $200, then the price per square foot of your basement would only be $100.

Sometimes appraisers will divide the price per square foot of the entire home by the gross living area.

Appraisers also look at comparable homes in your location to determine how much your home is worth. They will compare your home to other houses that have a similar square footage above-ground. This means that if you have 1,000 square feet of basement space and 1,000 square feet of above-ground space, they will compare your home to other 1,000 square foot homes, not 2,000 square foot homes.

This is simply something you will want to think about if you are trying to comp out your own property.

(Are you thinking about selling your house but don’t want to invest the money and time into making repairs? Learn more about selling your home as-is here.)

Finished Basement Add: Tips For Increasing Home Value

If you’re looking for a high resale value after you enjoy your basement addition for a few years, there are a number of things you’ll want to take into account. Here are some tips to make sure you get the most bang for your buck.

Make Sure You’re Complying With All Local Laws

In most locations, you will probably need to get a permit in order to finish your basement. You should definitely check into the costs of these permits before you jump into the process.

Don’t skip out on the part even though it might be tempting. You’ll have to pay a fine if you get caught and it can cause issues when it’s time to sell.

Decide What You Want to Use It For

Consider what types of rooms would add the most to your life and your family’s lives. Maybe you want to add a playroom for your children, a guest bedroom, or a bigger laundry room.

If selling is on your mind, though, you’ll want to think about what is most popular in your particular real estate market.

Also, be sure to think about your basement design looking like it matches the rest of your home.

Learn About Popular Layouts

Buyers are often looking for open floor plans but that isn’t always the case. One of the common challenges when it comes to a finished basement add is dealing with systems like the electrical box, water heater, and furnace as well as load-bearing walls.

Prioritize Incorporating Light

When you add natural light to your basement it can make the space a lot more enjoyable to be in. This also means you will likely have a lot more interest from buyers when it comes time to sell.

It’s no wonder that people are so drawn to spaces with natural light. There are countless health benefits to being exposed to natural light, both physical and mental.

Think About Flooring

You’ll definitely want to put some time into choosing the right flooring materials for your basement. You usually can’t use hardwood in basements because of concerns regarding moisture. Carpet tiles and high-quality carpet are reasonable choices in colder locations and quality vinyl is a good choice if your home is in a warmer climate.

Don’t Forget to Check the Height of Your Ceiling

Lastly, you will want to check the building code concerning ceiling height before you jump into your renovation. The standard building code states that ceilings must be at least 7 feet. If there isn’t much light in your basement, you typically want the ceilings to be as high as possible.

Both ductwork and pipes can make ceilings shorter in basements. You will want to talk to your contractor about what is possible when it comes to making your ceiling as tall as possible.

Is It Time For You to Sell Your Home?

If you are planning on selling your home and are looking for ways of increasing home value, a finished basement add probably isn’t worth doing. While it will most likely increase the value of your home, you won’t make back the money that you put into it.

If you are interested in finishing the basement in your home for your own enjoyment, though, that’s another story entirely. If it would improve your quality of life to have more finished living space, then finishing a basement can make a lot of sense. Since you can expect some finished basement ROI, you will likely be able to recoup some of the costs that you put into it when you finally do decide to sell down the road.

Are you thinking about selling your home soon but are concerned about dealing with all of the showings, staging, decluttering, and open houses? Are you frustrated by how much the process of listing your home for sale can interrupt your everyday life?

If so, don’t fret. There is another option! When you sell your home to an iBuyer, the process can be fast, simple, and stress-free.

Wondering how much money an iBuyer would purchase your home for? Check out our free home value estimator here!

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