I was asked a question this week about what qualifies as “finished” basement area in a home. An agent was going to list a home and the basement area had some partitioned sheetrock walls in the basement. The homeowner wanted to count this as finished area, so the agent wanted to get clarification on how this would be considered in an appraisal.
Even though some homeowners may use a semi-finished area as a recreation room or bedroom there are certain criteria that the area should meet to be considered as finished livable area. Lets take a look at how the appraiser will look at the basement area to determine if it will be given consideration.
It is heated and cooled? One of the main criteria that an appraiser looks at is whether the room(s) in question are heated and cooled with the same type of system as the rest of the home. If the rest of the home has a central heating and cooling unit then the basement should have a similar system. You must also look at what is typical within the market the home is located in. If the general public, including potential buyers, expects a finished basement to be heated and cooled with a central HVAC system then this will be the measuring stick the appraiser will use with the subject property. A window unit A/C and wall heater will not due in this scenario.
Is the quality of finish similar to the rest of the house? I have appraised homes where the owners kept the concrete block walls and floors in the basement, and painted them. This degree of finish would not typically be considered comparable to the rest of the home, which usually has sheet rock walls and floor finishes of carpet, wood, tile, or vinyl. At other times the basement would have acceptable floors and walls but the ceiling may consist of exposed beams and rafters that are painted. In some areas this is an acceptable building style and it would be considered as finished area, that is of course if it is heated and cooled.
How do you access the basement? This point is not as important as the previous two, however it may affect how much value is given to the area. Obviously if you have access to the basement from inside the house it is going to provide a more functional floor plan, as opposed to going into the area through the basement only. The majority of homes I have appraised that have a basement provide access to the basement level through interior stairs, however I have heard of older homes that require you to go into the basement from a basement level door in order to gain access to the finished area.
The above requirements make it pretty clear as to what qualifies as finished basement area. Do you have any questions about basements and how appraisers look at them? Leave me a comment I would like to hear your thoughts.
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Tom, I had an appraisal done two years ago and the appraiser refused to include 300 square feet (add on office) because the heating and cooling were done with a 220V wall mounted heat pump. This was not a window unit, but was permanently installed through the wall. As property taxes are going through the roof, I filed am objection with the county assessor’s tax office valuation stating according to the appraiser we did not meet city codes, and I had to connect the room to our central heating and cooling source. Meanwhile, I spoke with the head of building permitting and inspector’s office here in Hurst, Texas. He said that the appraiser was wrong, and that even a window A/C unit and baseboard heating would meet code met all city and county code requirements. He cited the 2015 International Building Code requirements. If I ever buy another home and I have the same experience, I will request that the lender order another appraisal.
That’s interesting. In my area, the in-wall heat pump is used frequently in built-out rooms over the garage. AS long as it can be considered a permanent part of the real estate and is self-regulating it should be able to be used. Regarding window unit A/C’s, as far as appraisals go we cannot include them because they are considered personal property. It might be worth noting to any future appraiser that the in-wall unit does meet the local building code.
Thanks for your reply. After the refinance was completed I did some research on the Appraiser’s decision, including quoting several sources that held the same opinion as you have. I realize you are far from our area. He told me he followed the law. He also pointed out I had no say in the matter because he did the appraisal for the lender. True. However, if I ever sell, I will advise the buyer that they should bring it up with the lender and ask that he not be used.
Tom, I am a bit confused regarding what is necessary to include living space in the square footage. You state in the what qualifies as a finished basement area, “It is heated and cooled? One of the main criteria that an appraiser looks at is whether the room(s) in question are heated and cooled with the same type of system as the rest of the home. If the rest of the home has a central heating and cooling unit then the basement should have a similar system.
Yet, in another section when a reader asked if an attic area converted to a bed room, and had no heating (relying for heat to rise through the attic floor) combined with a window air conditioner probably would qualify as compliant.
My home has a 25’x25′ add-on to the back of the structure. It is well constructed, and we use it as an office. It equipped with a heat pump which is permanently attached to the structure, provides both heat and cooling, and is thermostatically controlled. Can you explain why the Appraiser refused to include the square footage in the appraisal. The appraisal was for a cash out home equity loan. When I purchased the home 5 years before, all of the square footage was included in the appraisal. I also would appreciate any information as to the section of in the code for appraisers from Fannie Mae and Freddy Mac.
The attic must have adequate heating and cooling and relying on heat to rise from below is not sufficient and neither is a window unit ac as it is considered personal property and can be removed.
If the room you added to your home is accessible from the main living area of the home then it should have been included. If you have to go outside to get to it or pass through an unfinished area (such as a garage) then it cannot be included.
So 75% of the homes built prior to 1920 that only have gravity heat for the upper levels are not considered finished to you? Or what about an addition that has one of the newer split heating and cooling systems, that area has a different type of heating system than the existing areas, this is not a living area? I might also follow up that I know of no requirement for cooling for an area to be considered finished. Now it might be typical in the market but it is not required.
Brian, as I noted in the post, that would work if it is common and expected in the area. Those types of systems are also common in my area for older homes and it is would qualify as an acceptable heating system. The main point I wanted to make was that the heating and cooling source should not be a temporary one such as a window unit or something that could be easily removed. I have seen the newer split heating and cooling systems you mention and I would consider them as acceptable and part of the real estate. I believe you are correct about the requirement for cooling not being present, at least for FHA appraisals.
Hi Tom,
I am renovating my home, and we are now at the point for a insulation inspection. I am completely maxed out and my GC is telling me the inspector may make me add insulation to the basement ceiling. No big deal, I was going to home depot and stuff it myself. However the ceiling wood isnt thick enough and he says I have to spray foam my entire basement ceiling.
The basement will have forced hot air from upstairs, it will not have carpets, the ceiling will not be sheetrocked or insulated. Not painted, it will have a unfinished closet. There will be a new staircase heading downstairs though. Is this considered a finished basement? If so then i may have to spend more money and spray foam… if not then the inspector will hopefully leave it alone and i will finish it after the inspection. Let me know thoughts! thank you. This is in CT.
From the way you have explained it, it does not appear that it would qualify as a finished basement area. This may not matter when discussing the basement ceiling and the need for the spray insulation as this is probably a building code issue.
Not sure how to suggest a new thread, but one that has always troubled me is the requirement for a physical observation of a comparable sale. In my substantially rural market, we often drive 20 miles or so to take a photo of a locked gate or mailbox address to satisfy this requirement…. which it does not. We are NOT appraising gates or mailboxes, we are appraising an SFR dwelling (or whatever) that is not visible from a public roadway, so the requirement to view the “comparable” cannot possibly be accommodated. Thus, and unavoidably, the photo is misleading at best, and current standards generally require a supplemental MLS photo anyway. So….. when the appraiser knows this in advance, and adds a few hundred dollars to the fee for the extensive and misleading drive time & meaningless photos, seems to defeat the purpose and might be a good topic to address. The client ends up demanding, and relying upon, MLS photos anyway, so why do we continue to provide misleading and meaningless images of locked gates to satisfy a requirement that the appraiser physically observe the comparable property from the front (which would require trespass, which, in our market where cannibus production is prevalent and armed guards are not uncommon, ain’t gonna happen). Just something to have fun with.
I totally agree with you Douglas. With the aerial photography that we have, it is easy to find out if the home is visible from the road and if it would be useless to make the trip for the comp photo. Another argument I have heard is that the MLS photo provides the best description of what the property looked like at the time of sale so why not just use it? I realize that there are other reasons to go out and take the photo such as learning about external factors that may have affected the price of the home, however I think the appraiser could make that call as to whether they should visit the comp. Thanks for providing some food for thought.
Hey Tom, I just bought a house that they are trying to say is a finished basement. It has painted sheet rock but concrete floors, and exposed piping on the ceiling. It doesn’t have a cooling unit like the rest of the house, the rest of the house has central air. It can be seperately heated through the floors (heated floors) but the heating unit that runs to it is broken and we don’t plan to fix it. Again the floors are just concrete though. It has a fireplace that they say can be used for heat?
This is making our taxes increase and we will have to pay a fine for it being finished. Can you help us argue out point 🙂
I should also put I am in NY, I don’t know if that will affect anything.
Carly, when you say they do you mean the local tax assessor? It looks like it has a partial finish. Ceilings like that art not uncommon in my area of Alabam, however, the floors would not be considered to be truly “finished”. If it does not have cooling and the heating is broken then I would definitely question calling this finished. If you go by the definition from HUD the heating has to be self-regulating (such as a thermostat) and provide a minimum temperature of 50 degrees. Does it do this? If it is the tax assessor they may assess it as being partially finished but that may reduce the taxes.
Hey Tom. Enjoyed hearing you on the Life Along 280 and Chelsea show on KOOL 96,9 this morning. I have a finished basement that has the same quality flooring, walls, HVAC, etc. as the main level. It is accessed by interior stairs. However, when you go down the stairs, if you turn right, it is open to an unfinished 2-car garage. When you go down the stairs, if you turn left, there is a door right in front of you that opens into the finished basement area. In order to get the maximum appraisal value for my finished basement, do I need to add a door at the bottom of the stairs on the right to keep the unfinished garage area separate from the finished area? Also, do I need to add an HVAC register in the staircase?
Thanks, Michael, it was fun doing the show. The basement will be valued like any other finished basement. The difference will be the staircase, depending on its degree of finish and whether it is heated and cooled. The staircase is probably not that big and therefore would not contribute that much value so unless you could add the register at minimal cost I would not worry about it. While it would not make a big difference in an appraisal it may matter to potential buyers if you were selling it. If the staircase were enclosed, finished, and heated and cooled it may provide better aesthetics and be more appealing to buyers.
I have a house on the market where the basement is finished very much like the rest of the house however the concrete floor is painted and there is a large hemmed edge rug that covers 95%percent of the space it’s also a very nice Berber type rug The basement is what I would call fully finished with a rec area a den/office and a full bath …..there’s no real disappointment as you come into the basement
Is this still considered fully finished
I have seen different types of finishes for basement floors including paint and even stained. In and of itself this should not keep the basement from being considered finished. From your description, it sounds like it should be okay as long as it is heated and cooled.
I have a seller with a finished basement that is not permitted. All the work is contractor quality and each step was photographed. Can I count this sq ft with lain living level?
From an appraisal standpoint, we may never know the difference if the quality is good. The problem may come in if for some reason the lender we are doing it for wants to see a copy of the building permit and there is none. They are concerned that everything was done to code and there is no risk of electrical issues, etc. and that the property is insurable.
Tom,
I have a TV room in my basement that is finished (painted sheetrock walls, carpet, ceiling) but doesn’t have HVAC in it. We’ve never felt we needed it, due to it always being around 72 degrees. We just have a ceiling fan for the dog days of summer.
HVAC is in the other parts of the basement right outside of the TV room (full bathroom and laundry room).
Would you consider that “finished” or would I need to bring HVAC into the room to count it?
Thanks!
I would probably consider this as semi-finished area and make adjustment equal to the cost of running the HVAC duct work to the room. The cost to do this would probably be a lot less that the value you will get by including this room in the finished area.
I need help I bought a house it was 100% finished basement then I decided to make 1 bedroom into a theatre room and I ripped the cheap vinyl flooring in the basement and planned on replacing with carpet or tile. In the meantime I had appraiser come to house and report shows basement is only 86% finished and cut my square footage by 2000. Is my basement not considered finished
Yes Jason, it is considered finished. I think if I were doing the appraisal and saw something like this I would have counted the square footage and then applied a negative adjustment to reflect the deferred maintenance of the missing floor covering.