How to Analyze Finished vs Unfinished Basement Comps?

Question

Hey guys!

I originally was trying to assess if a home we found for a vacation home was a great deal.

http://www.biggerpockets.com/forums/88/topics/1669...

I received a lot of awesome feedback and have learned a lot. I just purchased the house flipping and estimate rehab books from BP. But while finding comps I ran into a problem...

How do you analyze comps with finished basements vs comps with unfinished basements?

I'm trying to get a general assessment of Price/SQFT based on turn key ready homes in order to establish my ARV. But the home we are looking at has an unfinished basement and all the other homes in the area have their basements finished. Do I simply not calculate that square footage into the equation?

I appreciate any advice or links that you share in advance!

Mike Hurney · Answer

@Marvin S. I only made this mistake once, 1997.

I finished a Basement and it never made it to an Appraiser's Report. They said "...it's below grade and could not be counted. However if you put the same $25k into a second floor we could have doubled or tripled that expenditure based on the finish!"

David Robertson · Answer

What do comparable properties without a finished basement sell for?

What do comparable properties with a finished basements sell for?

The answer to those 2 questions should give you a good idea of what your basement finish is worth...

Comparables w/ basements - Comparables w/o basements = Value of Finished Basement

Value of Finished Basement / Cost to Finish Basement = ROI

Phil Z. · Answer

I would probably just use the cost to finish as the increase in value.  If it is not really nice or a walk-out basement, it might just be a free-bee bonus.

Jon Holdman · Answer

No, @Mike Hurney best case is they counter.  Then you can negotiate.

Back when I was in the oil business one of the steps was to bid on Gulf of Mexico lease blocks.  Those were sealed bids, highest bid won.  They published the other bids, though, so you knew how much you had bid vs. the next lower bid.  That was always subject to a lot of analysis, because that was considered money left on the table.  Ideally, you wanted to bid just $1 over the next guy.  If your bid a MUCH higher than the next guy there was a lot of questioning of the analysis of that block to try to figure out if the other guy saw something you didn't.  Or, really, that you thought you saw something there nobody else did.  So you wanted to be sure your analysis was correct before you started drilling expensive wells.

When making offers on real estate even a rejection is OK.  You can always make another offer.

Of course when dealing with people you always run the risk of making someone so mad they refuse to even talk to you again.  You have to weigh that in making your offer, too.

Jon Holdman · Answer

Around here basement footage is worth very little, maybe 10% of what ground floor footage is worth.  Finished vs. unfinished makes very little difference.

Lee Smith · Answer

Do you have your own agent, or are you trying to go through the sellers agent? If the sellers agent, be sure you are aware she/he does NOT work for you, or in a dual agent situation he/she doesn't work for either of you... Just be very tight knit with your internal thoughts/agenda.  If you have your own agent you can be a bit freer, unless your state says all agents work for seller(you may want to ask).Regardless, what David said is good fodder.. Ask for comps of close properties that do and don't have basements.. Ask for pictures and the agent version of the MLS listings. Sold comps are your bread and butter. Since you don't intend to sell, I wouldn't be too interested in actives(unless looking for a different house to buy haha).

William Baumann · Answer

This is an issue I have come across and would love some input on this.  A realtor a while back sent me info on a property that had a finished basement, and they included the finished basement in the sq/ft of the home. Looking at the outside pics I could tell that there was no way the house was 3,000+ sqft,.  When I asked the realtor about this she said that if the basement is finished it is counted as living space in the price/sqft if it is unfinished it is not.

Example: a SFH value is $80/sqft @ 2500 sqft living with finished basement, market retail $200,000

same house with un-finished basement  $80/sqft @2000 sqft living space market retail $160,000

Marvin S. · Answer

That's a darn good suggestions, thanks David!!

Marvin S. · Answer

Thanks Phil!

Mike Hurney · Answer

@Jon Holdman Oh, is that how it works. Thank you.

How to Analyze Finished vs Unfinished Basement Comps?

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