{"id":22603,"date":"2021-03-16T12:20:21","date_gmt":"2021-03-16T19:20:21","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=22603"},"modified":"2024-04-18T09:38:12","modified_gmt":"2024-04-18T16:38:12","slug":"buyer-appraisal-value-of-unfinished-basement","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/buyer-appraisal-value-of-unfinished-basement\/","title":{"rendered":"What\u2019s the Appraisal Value of An Unfinished Basement? Here\u2019s The Math"},"content":{"rendered":"

Basements tend to fall into one of two thought categories: Either they\u2019re regarded as dark, creepy spaces only suitable for storage and mysterious happenings, or they\u2019re a prized home entertainment venue, ripe with potential for big TVs and even bigger couches.<\/p>\n

In fairness to basements of all types, the terminology we most often use to describe them \u2014 as either finished or unfinished \u2014 probably leaves something to be desired. Just because a basement is considered \u201cunfinished\u201d doesn\u2019t mean that the space is a problem waiting to happen, and if you\u2019re looking to purchase a home with an unfinished basement, you\u2019ll want to ensure the value is noted accordingly during the appraisal process.<\/p>\n

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Start With a Free Home Value Estimate<\/h3>\n

Enter a few details about your home, and we\u2019ll provide you with a preliminary estimate of value in less than two minutes. This won\u2019t replace a home appraisal, but it can be a helpful starting point.<\/p>\n \n

\n Request Estimate<\/a>\n <\/div>\n <\/div>\n<\/div>\n\n\n<\/div>\n<\/div>\n

To better understand the appraisal value of an unfinished basement, we spoke with Jordan Terrell<\/a>, a top Westminster, Colorado-based agent. Basements are so common in Terrell\u2019s market that he was able to share hard numbers on the difference in value between finished and unfinished basements<\/a>, as well as offer insight on what you can expect to pay should you decide to take on the project of finishing a basement yourself.<\/p>\n

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<\/a> Source: (Moobin \/ Shutterstock)<\/figcaption><\/figure>\n

Let\u2019s recap: What\u2019s an appraisal?<\/h2>\n

The appraisal<\/a> is an essential step in the purchase process when you\u2019re taking out a mortgage to buy your next home. Appraisers are highly trained experts who assess a variety of factors<\/a> \u2014 such as location, square footage<\/a>, amenities, and comparable homes that have recently sold<\/a> in the area \u2014 to determine a fair value for a property.<\/p>\n

In short, buyers don\u2019t want to overpay, sellers don\u2019t want to undersell, and lenders don\u2019t want to hand out cash for a house that isn\u2019t worth the amount they\u2019ve been asked to provide. An appraiser<\/a> is the fourth party who assesses the property and the pending purchase agreement<\/a> to ensure that numbers align.<\/p>\n

Where do basements fit in with appraisals?<\/h2>\n

While different states and counties may have different regulations (try Googling, \u201cwhat counts as square footage in [my county]\u201d if you\u2019re curious!), square footage is generally counted for an appraisal only if the space is finished and above-ground.<\/p>\n

This means that, in many cases, basements \u2014 even finished basements \u2014 are not included in square footage<\/a> calculations. That\u2019s why you\u2019ll sometimes see property listings boasting, for example, a 3,000 square-foot home with an \u201cadditional\u201d 1,000 square feet of basement space, because they are likely not allowed to position the home as 4,000 square feet in size even if the basement is finished<\/a>.<\/p>\n

What\u2019s the difference between finished and unfinished?<\/h2>\n

A finished basement means that the space is properly insulated and painted, there\u2019s flooring<\/a> and trim just as you\u2019d find in any other room of the house, there\u2019s electricity and temperature control \u2014 in other words, a finished basement is fully habitable.<\/p>\n

For this reason, finished basements tend to add value to a home because they increase the total amount of usable space, even if that square-footage can\u2019t always be officially accounted for.<\/p>\n

But unfinished basements \u2014 in all their concrete-and-exposed-pipe glory \u2014 aren\u2019t without their own merits. There\u2019s great potential in even the darkest, most cobweb-covered of basements, which means there\u2019s opportunity for real appraisal value.<\/p>\n

After all, as the future homeowner, you could absolutely choose to finish the basement according to your own preferences. Or, maybe you\u2019re just thrilled to have lots of storage space, and your plans for the basement include little more than a thorough cleaning before packing in your boxes and household supplies.<\/p>\n

As far as what these differences mean in terms of actual value? Well, it depends on who you ask.<\/p>\n

\u201cThere\u2019s an appraised value and then there\u2019s the consumer value,\u201d says Terrell.<\/p>\n

\u201cIt\u2019s been said that an appraiser will give 25% per square foot of the above-grade value to the finished basement.\u201d<\/p><\/blockquote>\n

Let\u2019s put this in practice with a little math<\/a>:<\/p>\n

If a home with 2,500 above-ground square feet appraises for $450,000, that means that the price per square foot is $180. If we assign a 25% value to the basement, that breaks down to $45 per square foot. So, if our hypothetical finished basement clocks in at 800 square feet, there\u2019s an approximate value-add of $36,000, based on what an appraiser is likely to report.<\/p>\n

This is where value to the consumer can really step in and overtake on-paper valuations \u2014 especially in a hot market<\/a> like we saw through 2020. Not having to go through the ordeal of planning out and paying for a basement to be finished (nevermind having to live in a construction zone while the work is taking place) can offer more than enough incentive for a potential homebuyer to offer top dollar.<\/p>\n

\u201cIn a post-COVID<\/a> era where people and their space is much more important right now, when home offices are a thing; people will pay more for a finished basement,\u201d Terrell notes.<\/p>\n

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<\/a> Source: (Alex Vassios \/ Unsplash)<\/figcaption><\/figure>\n

What\u2019s the cost to finish an unfinished basement, and is it worth it?<\/h2>\n

As a buyer who may be set on the idea of a finished basement, you\u2019ll need to decide if an unfinished space will be a dealbreaker if you find a house that otherwise meets your criteria.<\/p>\n

\u201cTo finish a 1,000-square-foot basement is going to cost between $50,000 and $70,000 to do yourself,\u201d advises Terrell. And \u201c2,000 square feet is going to cost you between $100,000 and $140,000.\u201d<\/p>\n

While these numbers may fluctuate depending on your location and the standard to which you choose to finish your space, having an idea of cost can help you better assess the value of an unfinished basement.<\/p>\n

\u201cIf the house is [priced at] $500,000 with an unfinished basement, and it\u2019s a 1,000-square-foot basement, then I know that there\u2019s at least $50,000 to $75,000 of value in that basement,\u201d says Terrell. \u201cWhen I price out a home, I look at what it would cost to finish the basement.\u201d<\/p>\n

It\u2019s fair to point out that there will be a considerable difference in cost between a basic finishing job to turn your basement into the equivalent of another living room, and a splash-out project that features upscale perks like granite countertops<\/a>, a wet bar, and a half-bathroom before you\u2019ve even picked out the furnishings. Whether an elaborate finished basement setup will be worth your investment is, ultimately, up to you. Consider the following factors:<\/p>\n