Finishing basement prior to appraisal

[Breezy]

Hello!

I'm getting some conflicting information about whether or not finishing our basement will affect our appraisal value. We live in a small home, 768 square feet above ground. We are looking to have an appraisal done in order to qualify for a bridge loan. Our basement is in the process of being finished, an extra family room and another bedroom. However, I was told anything below grade doesn't matter during an appraisal. Wouldn't finishing our basement increase the worth of our home?

The finishing process has been taking a lot longer than anticipated due to COVID and our lender wants to move forward with the appraisal even though the basement is still in process. Should we postpone the appraisal until the work is done? Or does it not matter since it's below grade?

 

[Mike Kennedy]

whether above grade or below grade "work in progress (if already begun)" DOES impact an appraisal - send a "to do" list of planned improvements to the LENDER and a discussion between the LENDER and an Appraiser is in order BEFORE setting up an inspection.

Depending on the Loan Program in play, the Lender may (or may not) engage an Appraiser to perform a "subject to completion of ......"

 

[bnmappraisal]

Mike gives good advice above. Check with your lender first before setting the inspection

However, I was told anything below grade doesn't matter during an appraisal.

Although I don't deal with basements much, since there are VERY few here in my area of FL, whoever told you the above is an idiot

Wouldn't finishing our basement increase the worth of our home?

As in everything appraisal oriented, the answer is "it depends"
Generally speaking that finished below grade/basement area (again, generally speaking) would be worth something. How much? Depends on your market
But even unfinished area can add value - again, depends on your market

our lender wants to move forward with the appraisal even though the basement is still in process. Should we postpone the appraisal until the work is done?

Depending on the Loan Program in play, the Lender may (or may not) engage an Appraiser to perform a "subject to completion of ......"

As Mike states, they may (most of the time they do) have the appraiser complete the report "Subject To ..."
This means the appraiser "pretends" that the items "Subject To" (i.e. in your case the basement area being finished as described by you) are completed

Once the Subject To items are completed, the lender then sends the appraiser out (99% of the time anyway) to complete a Final Inspection (usually completed on a 1004D form) to verify the items were completed in the manner originally described in the original report (again, i.e. the basement area has been finished as originally stated)
There is usually an additional fee for the Final Inspection

Best of luck

 

[Terrel L. Shields]

What you may have heard is that the GLA does not include the basement. GLA refers to the "Gross Living Area" and is the above grade portion of a house. A basement is below grade (ground level) therefore is valued separately. Depending upon market, basements whether fully underground or hillside "walk out" basements are not included in the GLA in most areas of the country by definition. You are in Minnesota where basements are common. I am in Arkansas where they are not and here often referred to as the underground pool, or the place we grow the mold to make homemade penicillin. The contributory value of a basement here is often less than you are likely to encounter. A bridge loan is often in house, so I don't think you would have that concern.

 

[sputnam]

Saying that anything below grade doesn't matter is just wrong. The characteristics of a property are what they are. In most markets, a property with a finished basement is worth more than an unfinished basement...Everything else being equal.

 

[Kitarkus]

Good advice already given here. Worth mentioning....you have a 768SF GLA dwelling and whether the basement is finished (or not) will not change this fact. Because of your dwelling's basic size characteristic....a house even as large as 922SF GLA (above grade/non basement) is at/near a size which is no longer competing with your dwelling (regardless of the comps basement features).

I my market area I would seek comparables with a similar bed/bath count ABOVE GRADE and dwellings sold whose overall SF of GLA is no larger than 20% differing (925SF +/- in your case). Preferably comps would have a similar bed/bath count above grade, similar overall SF of GLA and year built, and enjoy a similar degree of finish area below grade. Assuming that your house currently has 2 bedrooms above grade....adding a third bedroom to your basement does not transform your house to a "3 bedroom" dwelling in as far as your basic above grade format.

Anyone can finish their basement area and add a bathroom, bedroom, or other. In my market area finished basements are common and the contributory value of this feature can be easily and credibly quantified.

A house that enjoys a larger GLA, 3rd bedroom, or 2nd bathroom above grade may be an altogether differing category of dwelling when compared to yours (assuming your dwelling is 2 bed/1 bath above grade). In my area, the finished basement area contributes to the value of the dwelling but does not change those characteristics of your dwelling which form a credible basis for comparison.

 

[CJ1234]

Hello!

I'm getting some conflicting information about whether or not finishing our basement will affect our appraisal value. We live in a small home, 768 square feet above ground. We are looking to have an appraisal done in order to qualify for a bridge loan. Our basement is in the process of being finished, an extra family room and another bedroom. However, I was told anything below grade doesn't matter during an appraisal. Wouldn't finishing our basement increase the worth of our home?

The finishing process has been taking a lot longer than anticipated due to COVID and our lender wants to move forward with the appraisal even though the basement is still in process. Should we postpone the appraisal until the work is done? Or does it not matter since it's below grade?

I'm in MN. Basements certainly contribute to value here, as 99% of properties have them. All features and conditions impact value. The basement is, however, a separate line on the grid, so you will still see you GLA the same, but the basement will be a different line/section of the report/grid.