Are homes with finished basement always sell for higher prices?

If you google “what home renovations will increase home values the most”, top search results will say that bathroom and kitchen remodels, flooring, light and hardware fixtures, paint job, adding square footage and adding an income suite are all renovations that will generate good return on investment. Working in the Greater Toronto area where many homes are 2-storey with a basement, I have been asked many times by clients if it’s worthwhile to finish the basement just to increase the value of their home, and if so, what is a good amount to spend so they can recover most of the cost when they sell? Are houses with finished basement always sell for higher?

Modern Contemporary Basement Design Build Remodel

So in attempt to answer this questions, I gathered 192 sold MLS listings from Jan 1 to May 2 this year for detached homes in the Berczy, Wismer and Greensborough communities of Markham. Then I calculated the average sale prices with regard to the homes’ basement status using excel formulas. I chose these 3 communities because most of the homes in these 3 communities are within 15 years old, with similar lot sizes and layout.

The following tables are the results that I got:

# of Bedroom
# of bathroom
Basement finished?
No. of Sales recorded in 2016 in Berczy, Wismer and Greensborough
Average Sale Price
3
3
No
9
$875,978
3+1
3
Yes
5
$937,100
4
3
Yes
5
$996,050
3+1
4
Yes
13
$1,005,592
4
3
No
28
$1,035,667
4+2
4
Yes
12
$1,093,750
4
4
Yes
10
$1,119,380
4+1
4
Yes
17
$1,132,211
4+2
5
Yes
5
$1,241,560
4+1
5
Yes
9
$1,285,633
4
4
No
29
$1,293,200

Does having a finished basement necessary mean you are going to get more when you sell?

Let’s compare the average sale price of 3-bedroom 3-bathroom houses with unfinished basement vs. 3+1-bedroom, 4 bathrooms homes with finished basement. Let’s say you have a 3-bedroom, 3-bathroom home: if you add 1 bedroom and 1 bath to a finished basement, making it a 3+1 bedrooms, 4 baths home, the average resale price would go from $875,978 to $1,005,592, a difference of $129,614?

Also according to the 192 transactions recorded between Jan 1 to May 2, if you compare the average sale price of 4-bedroom, 3-bathroom houses with unfinished basement against the average sale price of 4+1-bedroom, 4-bathroom homes with finished basement, the latter sell for $96,544 higher.

But if you look at the bottom of the table, results start to contradict with common beliefs. Does a 4-bedroom, 4-bathroom home with unfinished basement worth more than the same house with more bedrooms and a finished basement? These calculation has limited significance because the sample size is small and there are so many variables that is not accounted for, such as location of the homes within the data set. For example, house prices are higher in Berczyfollowed by Wismer and then Greensborough.

Is it true that finishing the basement will add about $100,000 in resale value for some homes but in other cases it actually hurts the value? I do not think that’s the case. It is almost impossible to conduct a scientifically sound comparison as there are so many things that will affect house values that are impossible to control for.

If I were to interpret these results with my real world experience: I think it would be safe to say that if you own a home with 3 or 4 bedrooms, and are spending about $60,000 on a basement renovation with functional layout; quality materials and workmanship – you should be able to recover most of the basement renovation cost from the increase value of your home when you sell (ie. if you sell within the next 5 years).

Don't hesitate to contact me if you are wondering which renovations will increase your home value the most, I would be delighted to help!

Janis Tsang

Janis Tsang

Sales Representative
CENTURY 21 Atria Realty Inc., Brokerage*
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