Valuing Basement Square Footage in Comps

[Tina Wells]

Hey Folks!

Can you guys please offer me some expert guidance when it comes to evaluating finished basement square footage in my comp analysis in North Carolina? For example, I have a subject property that has 1682 SF on the main floor and 810 SF of finished basement (the majority of which is about 8 feet in height with the exception of some bulkheads to hide the mechanicals) and 271 of semi-finished basement that is a utility room basically (washer/dryer, freezer, hot water heater, furnace, some storage). How do I compare that to a comp that has 1840 SF on the main floor and 460 SF of finished basement space (and 1200 SF of unfinished space)? Both are walkout basements if that matters.

How do I value the basement square footage? Is the finished basement SF added to the main SF to get a total SF which I then use as I normally would to get a per SF price or do I value the basement and main floor differently? How do appraisers do it?

Any guidance is MUCH appreciated!

Tina

[Jon Holdman]

When an appraiser is adjusting a comp to match the subject property, he or she will use an adjustment based on the difference in square footage. What I usually see is that they start with the average $/sq.ft of the sales price in the area. So, say, properties in your target area are selling for about $100/sq.ft. Then, I typically see them take about a half to a third of that number for the adjustment factor. A house that's similar, but 10% larger than another usually isn't worth 10% more. Nor is a house that's 10% smaller worth 10% less. So, if $100/sq.ft is the starting point, they might use $35-50 for the adjustment for the ground floor. In this case, you have 158 sq.ft. difference, so, for my example, that would be an adjustment downward of $5530 to $7,900 on the sales price of the comp.

Basement square footage is valued MUCH less. Given the $100 figure for ground floor, I'd expect an adjustment more like $10 a sq.ft for basement. I don't see finished making much of a difference in value. I assume that's because its a relatively cheap project to finish a basement. In your example, it looks like your subject is about 579 basement ft. smaller than the comp. So, that might be another $5790 downward adjustment from the comp, given my $100 assumption. I have, in some cases, seen basement space totally ignored in valuation. I don't think that makes sense, because the space certainly adds value, in my experience.

But this does tend to vary from location to location. You might try asking other investors in your area how its handled. Or real estate agents.