Many homeowners and sellers are wondering if finishing a basement will add value to their home. The answer is generally yes. However, it doesn't necessarily mean that a basement is the best place to invest your home improvements dollars.

A finished basement is not as valuable in terms of the home value as a main-floor living area and above-grade bedrooms. (Above-grade refers to a room located higher than the ground level. It could be on a main or upstairs floor, but not in a basement. Although a main-floor addition is more desirable than a finished basement, it could cost much more.

Do I Need To Finish My Basement?

Your lifestyle, local real estate market, and your goals for finishing your basement will all play a role in deciding whether you should finish it. Let's say, for example, that you are a movie buff but don't intend to sell the space for a few more years. It might be worthwhile to build a basement home theater. The average 70% return on investment and the 30% you might not make up may seem worth it considering the many years you can enjoy your basement theater for before you sell.

Types Of Basements

There are three main types of finished basements. The type of basement you choose will depend on the structure of your home and how much you can afford to renovate it.

• Basement With Walk-Out

  A walk-out basement is the most appealing to buyers due to the natural light. It has a full-size entrance (often a slider) that opens to an outdoor space like a patio or backyard. This basement looks more like a ground floor because it has at least 6 feet slope from front to rear. It also has larger windows and allows for more natural light, which buyers love.

  A home with a basement with a walk-out will have the main floor at street level. However, it will rise from the back and often include a porch or deck. In some markets, the MLS may consider walk-out basements above-grade in calculating the price per sq foot. (More on this later).

• Standard Lot Basement

  This is what you might picture when you think of a traditional basement. The standard lot basement is underground with concrete basement walls. There is no natural light except through small windows near the ceiling. The main floor of a standard lot basement is usually pushed a few feet above the ground. There might be steps to descend from the main floor into your backyard. A standard lot basement is less appealing to buyers when it comes to resale because of the lack of natural light.

• Garden-Level Lot Basement

  Garden-level lot basements are a middle ground between a standard lot basement or a walk-out basement. They are partially above and partially below the ground due to a slightly sloping lot. Although a garden-level lot basement might have both full-size windows and small window wells, it is unlikely to have a door to the back yard.

Return On Investment For Finished Basement

You may not be able to recoup your entire investment in a basement renovation. Therefore, it is best to finish your basement for personal enjoyment and then to recoup some money when it's time to move on.

Some buyers actively seek basements. Therefore, your home will stand out in a highly competitive buyers' market if it has a functional, finished basement.

Cost Of Basement Remodels And ROI According To Region

Remodeling magazine's Value Report 2017 shows that basement remodels of a middle-range quality (meaning materials are not basic or builder-grade) will cost an average of $71,115 in the US and can be recouped at resale for $49,768 (or approximately 70%) - a slight decline from the previous year.

• The Pacific region (which includes California, Hawaii, and Washington, as well as Oregon, Washington, Oregon, and Alaska) is likely to have the highest ROI of basement remodeling at 86.4 percent. This region's average basement remodels costs are $84,062, and the resale value is $72,664.

• The West South Central region of the United States includes Oklahoma, Arkansas, and Texas. It has the second-highest return at 80.8 percent. There are average remodel costs of $64,827 and average resale returns of $52,368.

• New England homeowners (Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, Massachusetts, and Vermont) will likely see the lowest return of 52.8 percent. This region's average basement remodels cost is $76,429, while the resale value is only $40,377. The average ROI for homeowners in Wisconsin, Illinois, and Indiana is just 53.3 percent.

Appraisers Evaluate Finished Basements

You are likely thinking of selling your basement if you desire to resell it and market it. Not for your personal enjoyment. Understanding how basements are valued will help you understand how this will affect your home's overall valuation.

To understand how appraisers value basements, there are three terms you need to be familiar with:

• Above Grade:

  A room or living space that isn't in the basement. It is located above ground.

• Below Grade:

  Rooms or living spaces below the ground floor or basement.

• Gross Living Space:

  The Appraisal Institute defines a gross living area as the area of residential space above grade. It is calculated around the house's perimeter and does not include finished, habitable, above-grade living spaces.

An appraiser may begin by gauging the cost per square foot of your home. First, it is important to consider whether your home is above-grade or below grade. Living space below grade is half the value of space above grade. For example, if the area's average price per square footage is $150, then your basement would cost $75 per square feet. Appraisers can also calculate the cost per square foot of the entire house and divide it by the gross living space.

Appraisers also run comps using comparable homes that have recently sold in your area to determine the true value of your property. However, skilled appraisers won't compare basement homes to assess their value. For example, an appraiser won't compare a home with 1,500 square feet above grade and 500 square feet in basement space to one with 2,000 square feet. This is why you should do your research on comparable homes to avoid overpricing.

How To Finish A Basement That Will Increase Your Home's Value

It's not as easy as adding drywall and flooring to a basement that isn't finished. It is important to verify local laws and permit requirements. When planning a basement remodel, it is important to consider the layout you wish to create and the space available. Planning can also be helped by professionals, such as maximizing lighting or selecting moisture-proof material.

• Refer To The Local Laws

  To finish your basement, you will likely need a permit. It is advisable to check with your local jurisdiction to determine the cost and requirements for getting your project approved.

  Sometimes homeowners are tempted to skip the permit application process. It's an additional cost, and the work can't be seen from the street, so it's less likely that you'll get caught. If you are caught, you could face a heavy fine. Reputable contractors won't work without a permit. If you want the job done correctly and safely, you shouldn't use an unlicensed contractor.

  Additionally, buyers may be concerned about renovations that are not permitted during an inspection or disclosure. This can sometimes lead to them wanting to renegotiate or even walk out of the deal.

• Select A Function

  You'll want to finish a basement for personal use. However, if you are finishing a basement to resell, it is important to think about what will sell in your area.

  Remember that your basement should be the same style, look, and quality as the rest of your home. A high-end home should include a basement.

• Select Your Layout

  Buyers are generally looking for open floor plans. One of the biggest challenges is finishing basements is dealing with load-bearing walls or systems such as the furnace, electric box, and water heater. Talk to your contractor before you start planning.

  A report shows that 60 percent of buyers believe it is extremely important to have a spare or guest room in their home. If your home does not have a guest bedroom above grade, this might be an option.

• Check Your Ceiling Height

  Standard building codes require ceilings of at least 7 feet. Always check with your local government official. In a basement with limited lighting, the higher ceilings are better. Low ceilings are often caused by ductwork and pipes. Talk to your contractor to find out what you can do to increase ceiling height.

• Prioritize Light

  You can create a walk-out basement which will allow for more natural light. This will make the space more comfortable and attractive to potential buyers.

  Even if your basement is only large enough to fit into a standard lot, you will still need to consider light. You can compensate for the lack of natural lighting by installing as much lighting as you can. Recessed lighting is a great way for basements to be brightened without worrying about low ceiling clearance.

• Select The Perfect Basement Flooring

  Pay attention to the flooring materials when finishing basement floors. Most basements won't allow hardwood flooring due to moisture issues.

  If you live in a warm climate, quality vinyl is a good option.