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Updated almost 3 years ago on . Most recent reply

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Isa G.
  • Investor
  • Austin, TX
18
Votes |
39
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How do appraisers value finished basement square footage?

Isa G.
  • Investor
  • Austin, TX
Posted

Hello all, 

I am a real estate agent working with an investor in Kalamazoo Michigan and I came across an off-market property that's got about 1,300 sq ft of livable space on the main floor and 600 sq ft of livable space in the basement. However the basement doesn't have any sort of egress so I understand that it's not technically allowed to be counted as finished. My client is hoping to BRRRR and wants to be sure that any property he buys will appraise well after his rehab so he can get his $ out continue the cycle.

So my question is how appraisers may value this kind of livable but not technically finished basement space? And if my client were to add an egress and therefore an additional bedroom and 600 sq ft of finished space, would an appraiser consider this similar to adding a bedroom and sq footage on the main floor or would they value these additions less because they're in a basement? 

I know this probably depends on a lot of factors so any general tips and thoughts on this subject would be much appreciated! 

Most Popular Reply

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391
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116
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Brandon Krieg
  • Specialist
  • Grand Rapids and Kalamazoo, MI
116
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391
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Brandon Krieg
  • Specialist
  • Grand Rapids and Kalamazoo, MI
Replied

Hi Isa,

I am an appraiser (in addition to other things).  So, the most accurate (and probably frustrating) answer to your initial question is: it depends.

The appraiser will use market data to determine the value add of the finished basement space, and see if it is comparable to the value of finished area above ground.  It is all based on market data, and what buyers of similar properties value (and how much they value it).

In order to be more helpful, I can give you some general thoughts based on my experience.  But remember, it varies based on the area, the specifics of the home, what the market is doing, and more.  So, take some of this with a large grain of salt.

First, there is the definition of 'Living Area' (usually referred to as GLA on appraisals).  This only applies to area FULLY above ground.  So, by definition, a walk-out basement or area with an egress window does not count as GLA.  This is strengthened by the recent change by Fannie and Freddie to ensure everyone is adhering to ANSI measuring standards (the new change went into effect on 4/1).  So, based on your initial description, the home will have 1300 sf of GLA whether your client touches the basement or not.  This is not my opinion, this is the Michigan standard for appraisals.

Secondly, finished area below grade generally DOES add value to a property.  A basement bedroom can be legal if it has the appropriate size/ceiling height/egress/etc, and a true bedroom below grade generally DOES add value to the property.  However, in general, the market often does not value finished area below grade at the same 'rate' as finished area above grade.  So, while the value will be enhanced by the changes, it will not be enhanced AS MUCH as if the 600 sf and additional bedroom were above grade.  Does that help?  Again, this could vary based on specifics.

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