What qualifies as “finished” basement area?

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.

How appraisers look at 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. 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.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Comments

  1. 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.

  2. Carly Anderson says

    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 🙂

    • Carly Anderson says

      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. 

  3. 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.

  4. 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.

  5. 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.

  6. Austin Davis says

    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.

  7. Jason maes says

    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.

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