Finishing your basement adds square footage to your home, and increased square footage translates into greater value. Finishing your basement may be a far more cost-effective means of adding space than building an addition or adding a dormer. If you can work desirable amenities into the equation, like an added bath, an egress window, a bar or a home theater, values may go still higher. The added value of these items, however, depends greatly on market conditions and geography.
Add Equity With a Finished Basement
Calculate your home's square footage in one of two ways. The easiest way is to simply copy the number from your deed. If your deed isn't readily accessibly, just measure. In each finished room of your home, multiply the length by the width in feet. The result is the square footage of the room. Add together the square footage from each room, and the resulting sum is the square footage of your house.
Locate your home's value. If it has been recently appraised, use that number. If not, copy the value from your most recent property tax statement. Divide the value of your home by its number of square feet. The resulting amount is the cost per square foot. For example, if your home is valued at $225,000 and contains 1,875 square feet of finished space, its cost per square foot is $120.
Plan to spend $40 to $75 per square foot on finishing your basement. For example, if your unfinished basement contains 800 square feet, your budget would range from $32,000 to $60,000. Shop carefully for quality supplies and skilled labor and make your basement as beautiful as possible within scope of your budget.
Calculate the value of your added space. If you added 800 square feet onto the existing 1,875 square feet used in the example, you now have and a total of 2,675 square feet. That number, multiplied by the $120 per square foot used in the example, your home is now valued at $321,000, an increase of $96,000. If you spent $50,000 to finish your basement, your net added value is $46,000, or 20 percent.
This calculation is based on converting unfinished spaced to finished space. A simple remodel of already livable space, though costly, may not yield the same added value.
If you were able to add a bathroom or legal bedroom within the confines of your budget, your added value is likely even greater. Be careful, however, not to increase the value of your home to the point that it is out of step with other homes in the neighborhood. In that instance, your home may not sell for the value you think it has.