Don't Finish Your Basement (or Garage or Patio) IF..._squoosh

    “Your godda***d appraiser only gave $7,500 to my basement after I spent 85,000 f**king dollars finishing it! Go f*** yourself!”

    So said a borrower to me years ago after he reviewed an appraisal of his home that he clearly did not like (to put it mildly).

    Knowing that “the customer is always right,” I tried to do as he instructed but it proved difficult, so I decided to blog about the topic instead.

    OK – while the above story is true, the real reason I am blogging about this is because a borrower recently asked me about a basement he just finished without getting permits.

    He read this recent blog – Why Appraised Values Have to Season After a Purchase – and was hoping his new basement would help him get a much higher value.

    But, unfortunately, the new basement will probably not help much at all, and this is why.


    No matter how nice the finishing might be for a basement (or garage or enclosed patio) that is not part of a property’s formal gross living area, appraisers are very reluctant to give such spaces significant value. This is the case even if the homeowner obtained permits for the work.

    Appraisers will give value to finished basements and similar space if they can find hard and fast data (comparable sales) that support their conclusion.

    In other words, appraisers would need to find similar homes with similar finished basements that recently sold for $50,000 more than similar homes with no finished basements – if the appraiser wants to give $50,000 of value to the finished basement.

    The problem is that such comparable sales are often difficult or impossible to find in areas where basements are not “common for the area” (to use appraisal parlance).

    The borrower above who asked me about his recently finished basement lives in Oakland, CA where finished basements are few and far between.

    Because of this, it is very unlikely that there will be sufficient comparable sales with basements, and he should probably expect a value bump of no more than $10,000 to $15,000 at best – and that is a lot, given that he lives in an area where homes average $1.5 million.

    In the upper Midwest, in contrast, finished basements are very common so finding comparable sales to support a higher valuation would not be as difficult.

    The same is true for San Francisco, where a lot of the older homes built into hillsides have finished spaces in the lower levels that are not part of the formal gross living area; they can nonetheless enhance appraised values because similar comparable sales are not hard to find.

    Basements are also very rare in Texas because of cost, structural and flooding concerns (some justified and some not, as explained in this Dallas Morning News article). But, the above rules apply similarly to the many finished garages and patios we do see in Texas.

    So – don’t finish your basement (or garage or patio) IF you expect it to result in a much higher appraised value.

    Unless of course there are ample comparable sales with similar finished basements that will support a higher value conclusion.

    Otherwise, borrowers should expect no more than $5,000 to $25,000 of additional appraised value for their efforts, depending on the area.


    This is also a great reminder of how “Functional Obsolescence” works – where the total cost of improvements often does not result in an equal increase in value.

    $85,000 spent to finish a basement that only increased the value of the home by $7,500 is a perfect example.

    Jay Voorhees
    Founder/Broker | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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