A Finished Basement Adds Value to Your Home, Just Not In the Way You Think

What the data says about finished basement ROI

Let’s cut to the chase, based on the available data: For about every $1,000 you put into a basement refinish, you can expect to get about $700 back.

According to Remodeling Magazine, which has been offering returns data on popular home improvement projects since 2002, a midrange basement refinish will fetch recoup 70% of your spend.

That assumes your basement refinish includes exterior wall insulation, painted drywall for the walls and ceilings, painted trim, tile flooring (the works, but nothing overly luxury) as well as a bar, bathroom, and main area.

How home appraisers factor a finished basement into their calculations

A home with a finished basement will be appraised for more than a home without, but based on the style of your basement, the value add will vary, explains Chuck Argianas, a Chicago-area appraiser with over 30 years of experience.

As a general rule, the deeper your basement is below-grade, the less the added square footage will appraise for. If your appraiser is going by Fannie Mae’s rule book, they won’t include your basement in the total square footage at all.

Most finished basements will fall into one of the following categories:

• Full-basement or usable lower level space.
  A full-basement has ceilings tall enough for someone to stand up in, and are often as large as the footprint of the home. Sometimes called usable lower level space, these basements don’t have access to the outside unless through a set of stairs to ground level.

• English basement or walkout basement.
  An English basement is either all or partially above ground, and has a point of exit in the front, or more commonly in the back–you can literally “walkout” of these spaces. These basements are often more valuable per square foot since there’s a point of egress.

A basement remodel is often less expensive than an above-ground house addition, creating in a practical sense, usable (heated) square footage for a real bargain. Thumbtack, a company that offers skilled professionals in over 1,000 home-related services, puts the average cost of finishing a basement between $5,100 and $8,750 nationwide, whereas the addition of an above-ground room can cost from $10,000-$80,000 or more, the company notes.

However, no matter the condition or level below ground, the finished basement space will never equate to the same value as above-ground living space in the eyes of an appraiser.

“Appraisers will take a baseline say of $100 a square foot for the above-grade space. And maybe the below-grade space is 70% or $70. Appraisers really should recognize the value for the below-grade for that type of usable space, but it won’t be at the same value,” says Argianas.

The value at which an appraiser calculates your below-grade space will depend on a few factors, including its access to the outside (or lack thereof), total number of windows, the quality of finishes, and more.

In addition, appraisers will use comparables in your area to ballpark the value of your basement and property overall. To complicate things further, appraisals and definitions of basement can also vary by location.

What factors will affect ROI?

Finishing your basement will certainly add some kind of value to your home, but just how much of that money you get back depends on a number of variables, including:

• Your real estate market.
  Depending on where you live, your finished basement could be worth more in the long run. In cities like Washington, D.C., and Boston, finished basements are common, and square footage is at a premium. Being in a competitive market where the basement is common will likely increase its ROI.
• Your material selection.
  Refrain from remodeling your basement with top of the line furnishings and finishes, explains Argianas: “If you do finish a basement, modest is good, average is good. But, you don’t want to finish it out to the same level that you would the upper-level space.” By using middle-of-the-road but dependable fixtures and materials—rather than splurge on over-the-top items—you’ll save money upfront and see a higher ROI.
• Use potential.
  A finished basement with a few open spaces will likely have a higher ROI than that of several closed-off rooms. With natural light at a premium, or nonexistent, creating an open, flexible basement space is essential.

To better determine how much value a finished basement might add in a future sale, work with a real estate agent well-versed in your market and comfortable with assessment practices in your area.

How to boost the ROI of your finished basement

Follow these 5 pro tips to get the most out of your basement budget:

1. Deal with radon upfront

Before you start building out a basement, spend the time and money necessary to test for radon. According to the Environmental Protection Agency, an estimated 1 in 15 homes in the U.S. has elevated radon levels that increase a person’s risk of getting lung cancer.

Radon is most likely to present in basements, so testing the space can give you and future buyers of your home peace of mind. A professional test can run anywhere between $150 to $800 and will give you the information you need to move forward.

Radon mitigation projects (which will vary based on your home’s construction, design, as well as your local climate) make it possible to still finish out the basement as planned. On average, mitigation costs between $778- $1,158, based on the method you go with.

2. Use hard materials for flooring

Even with the best of renovations, a basement is still a basement. Most buyers will see it as a “bonus” space, not a must-have in a home. High-end flooring isn’t necessary for the area, and can even backfire. “Don’t forget basements flood,” says Argianas.

Hardwood flooring is expensive, and using it in the basement can lead to warping from moisture naturally seeping through the ground. Similarly, carpeting in a basement can lead to musky scents and odors—a turnoff for buyers. Instead, use ceramic, porcelain or stone tile over cement board with accent rugs across the room. The right hard flooring will keep moisture at bay, and renovation costs down.

3. Install recessed lighting and exposed ceilings to create a light and airy space

Combat a lack of natural light in your basement by installing plenty of recessed lighting throughout the space. High quality LED lights can be discreetly installed under cabinets, and flush to the ceiling.

If a drop ceiling leaves your basement feeling dark or cramped, opt for an open, industrial look. You can leave ducts, beams, and wiring exposed. Paint them a bright white to make the room look bigger.

4. Make the garden level entry welcoming with high quality doors and concrete slab for the walkout area

In the basement, natural light and access to the outside are in high demand. If you have an English or walkout level basement, highlight the feature with glass double doors and a small patio space. Choose durable double doors with thick panes that insulate the space, and steel that can withstand the elements and provide security.

As for the patio: “I wouldn’t put down wood, because critters climb underneath there,” Argianas says. “Just pour a nice concrete pad and plant some flowers and a little garden.” Simple concrete slabs can cost between $3-$6 per square foot to install and don’t require much upkeep. However, highlighting outside access in an otherwise underground basement can make the space feel much bigger.

5. Create a mini in-law suite

Gone are the days of the basement den, says Jones. “The in-law suite, that’s in really high demand here.” 20% of Americans live in a multi-generational home, and that number continues to rise as assisted living costs become more expensive.

Often in-law suites are defined as an accessory dwelling unit separated from the house, with a bedroom, bathroom, and small kitchen. With a big enough space and walkout access, however, homeowners can create a mini in-law suite in their basement. Because it’s not an additional unit on the property, you likely won’t be required to go through rigorous permitting that traditional in-law suites require.

To maximize ROI in your finished basement, Jones recommends “adding at least one bedroom and bath while keeping everything as open as possible.” The open space will give buyers the ability to envision themselves there, but adding a bathroom and bedroom can raise the value of the below-ground square footage.

Then, depending on the budget, add a kitchenette, or at least hookups for one. “So wherever your drain is close to the bathroom, I would have a drain, a little dishwasher, countertop, maybe a little oven because more people are looking for that in-law suite,” Jones recommends.

Adding an in-law suite or potential in-law suite can add value to a home for buyers as a place for guests, an Airbnb rental, or a private dwelling for an aging family member.

From start to ‘finished’ basement

It can be tricky to determine exactly how much value a finished basement will add to your home at resale, but with the right execution, finishes, and design choices, you can expect around 70% ROI. A finished basement won’t always add “official” square footage to your home, but it can add value to future buyers.

Just remember: Don’t assume that the value of improvements to below-ground space will be equal to the value of above-ground projects, and you won’t set unrealistic expectations for a project you’re sure to otherwise enjoy.

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