Are Finished Basements Living Area?

The answer to that question likely depends on the person answering the question. Many homes have basements that are finished to such a degree that they have the look and feel of living area. However, real estate appraisers, when appraising homes for mortgage lending purposes, have to follow the guidelines of the lenders. Note the following quote from Fannie Mae regarding finished below grade areas:  "Fannie Mae considers a level to be below-grade if . Fannie Mae considers a level to be below-grade if any portion of it is below-grade, regardless of the quality of its finish or the window area of any room. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count. Rooms that are not included in the above-grade room count may add substantially to the value of a property, particularly when the quality of the finish is high. For that reason, the appraiser should report the basement or other partially below-grade areas separately and make appropriate adjustments for them on the Basement & Finished Rooms Below-Grade line in the Sales Comparison Approach adjustment grid." In my experience there generally is value in having a finished or partially finished basement. The value is just documented under the basement area of the appraisal instead of being included in the gross living area. What if the appraisal is a split-level or bi-level dwelling in which the basement is finished and has a walk-out entrance, and is not being appraised under the guidelines of Fannie Mae or FHA? There are times when this kind of area might be included in the gross living area (GLA). However, if an appraiser includes it as GLA, then it cannot also be considered to be basement area. Otherwise this could be misleading. It's either one or the other. Over the 19 years I have been appraising, I have found that the dollar adjustment for finished areas below grade is generally less then the market extracted adjustment for above grade GLA. From a constuction point of view this also makes sense. What would be more expensive, finishing a 1,000 sq. ft. basement area or adding on a 1,000 sq. ft. addition? Clearly the addition would cost more. 

So the next time your home is appraised, hopefully this article will help you to see why the appraiser did not consider you finished walk-out basement in the gross living area.