A finished basement makes your home more attractive to buyers by adding living space
Finishing a basement should provide a 70% return on investment.
Your location and the type of basement you finish affect your ROI.
Finished basements add value in the form of living space and utility.
Finishing your basement can be a great way to add value to your home, especially since you’ll be adding living space for your own use before you sell your property. Most homeowners want to know that they’ll see a return on investment (ROI) on their home improvement projects. The ROI of finishing a basement won't be as much per square foot as a home addition on the main floor. However, there is still a rewarding ROI when you finish a basement.
On average, finishing your basement will provide a 70% to 75% ROI. Discover how much value different types of finished basements add, factors that affect your ROI, and more.
The average cost to finish a basement is around $18,400, or between $7 and $23 per square foot. That means the typical return you’ll see when finishing your basement will sit at around $12,900.
Finished basements add lots of utility to your home that you wouldn’t get from an unfinished basement, and that utility is where most of the value comes from. From added living space to additional room for entertaining, a finished basement makes the space beneath your home more useful for a variety of reasons, depending on your basement finishing ideas.
The most appealing thing about a finished basement for most homebuyers is the added living space. Depending on the layout of the area and the style of your home, you could add 50% to 100% of your above-ground living space to your home just by finishing your basement.
There are finished basement building codes you’ll need to abide by and permits you’ll need to pull to add things like bedrooms and bathrooms to your basement, but even if you just finish the open space, you get more room to entertain or let kids play out of your main living area on the first floor.
You can sometimes use finished basements as accessory apartments with the right rental permits, which means you could turn an unfinished area that’s only good for storage into a potential monthly income. Your finished space will need to be fully up to code to get a rental permit, so we recommend hiring a basement finishing professional near you to get the work done if you intend on renting it.
If you have guests visit often, or you want to set up in-law quarters for aging family members, a finished basement could be ideal to offer them a private space. Buyers with these needs will also see similar value in your finished basement.
There are a few things that play a role in how much value your finished basement will add to your property.
Location: Your geographical location will be a significant driving factor in finished basement ROI. Areas where finished basements are the norm will see a much higher return, in most cases, as buyers expect basements to be finished and might avoid homes that have unfinished basement areas. That means less demand for your home, which typically means a lower sale price. If you live in an area where finished basements are desirable but rare, you could also see an above-average ROI.
Quality of finish: The quality of the materials you use to finish your basement will, of course, play a role in the value bump you’ll see, although it depends on where you live. If you live in a high-rent district, using low-quality building materials and finishes will very likely yield a lower return on investment, whereas investing in high-quality finishes in a less expensive area may not lead to as big of a return as they would in a more expensive city.
Layout and available use: The layout and use you establish when you finish your basement will determine how appealing it is to buyers and will consequently affect your ROI. Ultimately, the desired use for a basement is based on the individual buyer, but most prefer to use finished basements as open entertainment spaces, so you might see a lower return if you install dividing walls to create individual bedrooms.
Type of basement: The type of finished basement you have can play a part in the return on investment you see from your basement finishing project. Walk-out basements are generally the most desirable, so you’ll see a higher value increase if you finish a walk-out basement than you would with a garden-level basement.
There are three types of basements, and the style you have makes a difference when it comes to the return you can expect.
Walk-out basement: A walk-out basement requires a sloped piece of land, as one side of your basement is mostly underground, while the other side includes a door that opens out directly to the yard or a patio. Finishing a walk-out basement will usually lead to a higher return than any other style, as it’s typically the most desirable.
Standard basement: A standard basement is mostly underground and usually located on a flat or mostly flat parcel. This style includes either an indoor or outdoor staircase that leads from the lower level up to the level of the yard. The return you’ll see finishing a standard basement is somewhere between a walk-out and garden-level basement.
Garden-level basement: A garden-level basement is mostly underground and doesn’t include an exterior entrance at all. The return on a finished garden-level basement is usually lower than that of a standard basement, and more work might need to go into providing sufficient light, as these tend to be the darkest basements with minimal natural light.
Whether or not you should finish your basement depends on a few different factors.
Consider your location before deciding whether to finish your basement. If you live in an area that’s prone to flooding, for example, finishing your basement probably isn’t a good idea, as you’ll just be increasing the dollar amount attached to repairs after flooding. If you live in an area where humidity and annual rainfall are high, building materials in your basement could serve as a place for mold growth, which, again, would make a finished basement far less valuable.
Next, consider how you’ll use your basement. If you plan on getting a rental permit and renting out the space, you could recuperate the cost of finishing your basement in just a few years. If you plan on using the area for yourself, you’ll have to decide if the cost is worth it. If you need more living space, a finished basement is a great choice and often more affordable than the cost to finish an attic space or building a home addition.
Since the expected return on investment is only 70%, finishing your basement probably isn’t wise right before you sell, as you’ll end up losing money. However, if you plan on remaining in your home for at least a few years, you can get value from the finished space until you do decide to move, ultimately making it a worthwhile investment that also boosts your home value in the long run.
"Assuming you'd be selling and then buying a new home at fair market value, renovating your existing home will make sense financially. Moving requires a lot of transaction costs, mainly the commissions and closing costs from a bank which can add up to a couple of percentage points on each transaction."
— R.J. Weiss, Certified Financial Planner and Founder at The Ways to Wealth
Appraisers will consider the value a finished basement adds to homebuyers, but they don’t often assign the same value per square foot as they would to the above-ground living area. Appraisers assess the value of a finished basement space by calculating 50% to 60% of the value of the square footage on the above-ground main living space.
Technically, no, a finished basement doesn’t count in square footage because it won’t affect your gross living area when an appraiser is assessing the value of your home. If you get the proper basement finishing permits, you could safely use the finished space as living area. When it comes to your property taxes, your finished basement could affect the square footage of your home and bump up your taxes.
Living in a finished basement can be healthy, but you need to take some precautions, like ensuring you have safe points of egress, getting proper building permits for the project, and installing smoke and CO detectors in the space. Depending on where you live, you might also need to consider humidity, the presence of mold, and the presence of radon to ensure your basement is fit to use as living space. If you’re DIYing your finished basement, you should consider having a professional assess these things to ensure it’s safe to live in the space.
