Does a finished basement add value to appraisal?

As a homeowner, you know that any upgrades to your home should be an investment in its value. The basement tends to be one area where homeowners are still a bit confused as far as how it affects the value of a home. Does a finished basement add value to appraisal or not? If it does, how much will it increase the value? We're sure you have many other questions like this. We're going to answer some of your most common questions below so that you have a better understanding of what a finished basement can do for your home's overall value on the market.

The simple answer is that yes, a finished basement will improve the value of your home. However, it's important to realize how much the value will go up. The basement square footage of your home is not valued at the same rate as your above ground square footage. In fact, the basement square footage is not typically included in the total square footage of your home recorded on the appraisal.

The value that the basement adds is based on the functional utility of the area and the quality of improvements that were done. Functional utility is a term which appraisers use to describe how well a room is determined to fit its intended purpose. For example, if you put a bathroom or bedroom in your basement, does that room fully function as it's supposed to?

How Much Value Does A Finished Basement Add?

The value of the basement will be determined by the functional utility and the square footage. The value of the square footage of your finished basement will be at typically 50 to 60 percent of the value of the above grade square footage. Therefore, if you know what the value is per square foot of your existing home, you can estimate what the value of the finished basement will be for an appraisal.

Determining How Much To Invest

While you may have grand dreams of having a perfectly finished basement that looks similar to your above ground square footage, you need to put things into reality. You don't want to invest the same amount of money in finishing your basement as you would a room above ground. This is because below ground upgrades don't return the same value as above ground upgrades in a home.

Using the formula that we described above, you can figure out what the end value of finishing your basement will be based on its total square footage. You won't want to spend any more money than what that value is. In fact, you'll likely want to spend well below that. Most home improvement specializes recommend keeping the budget for your basement finishing at 10 percent or less of the value of your existing home.

So, let's say your home is worth 200,000 dollars. You won't want to spend more than 10 percent of that value or 20,000 dollars when finishing your basement. The 10 percent rule is a general rule of thumb. It's a good idea to utilize both the 10 percent rule and calculating square footage to determine a fair budget for your basement renovations. Always remember to upgrade your basement within a reasonable budget to ensure you get a nice return on your investment of funds.