• Jesse Ledbetter

Basements =\= Above Grade

In recent conversations with homeowners and realtors, the topic of "Above Grade" and "Below Grade" living areas has come up. In these conversations, the person trying to get the highest value possible from their home insisted that finished basements add just as much as above grade square footage. Today, we'll use a thought experiment to disprove this idea.

For this thought experiment, we will consider two newly constructed "ranch" style layouts, of a 1,700 square foot home. The above sketch is not precisely to this dimension, but it will serve as a fine analog. The two homes are identical in every way on their interior.

There is only one... little difference. Here is the exterior view of each:

One is completely buried, the other is a standard design. Is there a value difference? Lets look at the evidence:

  1. Most lenders won't consider lending on the "buried ranch" because it may not be able to obtain financing, as it does not conform to the market, and may not pass Fannie Mae's Guidelines.

  2. There is a reason that Fannie Mae requires that appraisers report any level of the home that has ANY portion of it being below grade - this is because they know that the market reacts differently to these areas.

  3. Statistical analysis in the greater Richmond market shows that the below-grade finished area generally has a contribution to the value of approximately 50% of that of the above grade.

But, back to the promise of this article: a thought experiment. If you were offered the two homes (especially being an informed buyer by all of the above facts) at the same price, and the layout of the home was your dream home, and they were in the same neighborhood, side by side, which would you pick? Any reasonable non-hobbit would choose the conventional home. However, the power of the thought experiment really comes into play when we ask the next question; How much would the buried home have to be discounted for you to consider purchasing it?

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