From the beginning, basements were not built to provide living space but a place to hide plumbing, wires and water boilers. Home buyers are always interested in the gross living area of a property, and many might believe that finished basements are included in the square footage.
When You Buy a House
If you must secure a loan during the home buying process, you may want to look at how Freddie Mae is treating basements. Appraisals are vital for the mortgage industry because lenders always want to make sure that buyers do not request more money than the property is worth. According to the Selling Guide, basements and garages are not included in the gross living area of the property, especially if these are below-grade. So, from their perspective, basements could be regarded as a “free” living space.
Any home improvements will alter your house market value, though, and will require a reappraisal, not only to determine the new property tax but also in the event of a loan refinance.
In short, even if appraisers have to abide by the lender’s rules, and not include the basement in the gross living area, this space is still included in the selling price of the property.
When You Sell a House
Finished basements, even though not included in the square footage, increase the home’s market value. One house with a finished basement next to another one with an unfinished basement will cost more, since it provides more living space, even though the official documents will not specify this. Real estate agents usually make a different appraisal when fixing the correct market price for a certain property, and that appraisal takes into account the benefit of having a finished basement. The destination of the finished basement can also increase the selling price, so highly personalized basements could turn buyers’ interest off. Home buyers usually prefer basements with a more conservative layout: a bedroom, a bathroom and maybe a laundry room. So, from this standpoint, an in-laws suite could be more valuable than a home theater. And a walk-out basement is more appreciated by homebuyers than an under grade basement.
In conclusion, a basement may not be included in the square footage, but that doesn’t mean that the buyer doesn’t pay for it.