What About Resale Value in My Basement!?

You might wish to know how much of your original finished basement investment you can recover if you later sell your home.

Unfortunately, there’s no scientific answer to this question. Once built, your finished basement is inseparable from your home, and home improvement costs are not itemized in the listing or sales contract for your home. To maximize your resale value, your basement must look and feel like it was built during the original construction and it has a seamless transition from one floor to the next.

The best you can get is an educated guess. But fortunately, someone has already done that work for you.

Remodeling Magazine surveys approximately 200 realtors in 60 metropolitan areas across the United States each year to estimate resale values for various types of home improvements. Here are the 2011 estimates for finished basements, based on an assumed original cost of just under $50,000:

 

Unfortunately, these percentages are based on all remodeling projects, whether they were done professionally or hacked together by a handy man. It has been our experience that the resale value of a well planned and executed project is much greater than the national averages. In many of our client’s experiences, many of them have received a greater value for the work done then they originally investment.

What factors will most impact your resale value?

Remodeling Magazine states this:

“There are many variables that determine what homeowners can expect to recoup from their remodeling investment: the value of the home, the value of similar homes in the neighborhood, the rate at which property values in the neighborhood and the area are rising, and the quality of the design and construction performed by the remodeler.”

 

Other factors we hear from Realtors include:

·         The extent to which your finished basement complements the style and quality of the rest of your home.

·         Features with high universal appeal or that add additional living capacity to your home, such as bathrooms and bedrooms.

How to save more by spending more

What happens if you get too budget-conscious with your finished basement addition? You can actually lose more in the end. Here’s how:

Let’s say your home is valued at $425,000 and you want to finish 1,500 square feet of your basement space. You are debating which of these two construction bids to choose:

• A high-quality design costing $50,000
• An “economy” design costing $35,000 (a do-it-yourself job or a low-budget contractor)

Now let’s suppose that the high-quality design will recoup 92% of original cost when you sell your home, while the economy design will recoup just 37%. (These figures are plus-or-minus 20% of the Denver Metro average cited by Remodeling Magazine.)

Based on these assumptions, here’s how you would come out after you sell your home:

 

 

As you can see, the high-quality design yields a $33,050 higher resale value, even though it cost $15,000 more. So you got $18,050 richer by spending $15,000 more on the front end.

The moral of the story is simple: think twice before choosing cheap over high value when hiring journeyman contractors to do “economy” construction jobs.

Note: You also can sacrifice resale value by over-spending on your space. Most people on that side of the ledger, however, are less motivated by savings and more motivated by image and increased standard of living.

Consumer Reports summed it up well

Consumers Union submitted the Remodeling Magazine home improvement resale estimates to real estate appraisers provided by the Appraisers Institute. In a November 2002 article entitled Making Your House Pay Off, they reported:

“After three years, return [on investment from home improvements] is impossible to estimate.”

“On all projects: those that add square footage to bring a house up to—but not beyond—community norms pay off the most.”

“You’ll get the biggest bang for your buck by keeping up with the Jones’es, not by going them one better. If houses have two baths and you only have one, adding a second will boost you home’s value. The same goes for bedrooms.”

“If of the same quality as the rest of the house, a finished basement will be a plus. Amateur, do-it-yourself jobs won’t yield maximum return.”