Bedroom in the basement? ARV Question

[Mike Lauer]

Hello BP,

I'm trying to understand the impact of adding a 3rd bedroom in the basement -- to a 2BR house -- for appraisal purposes. This would be in the context of buy-and-hold, with a cash-out refi after the addition of the egress window and some minor finish improvements. Location is the north shore and north suburbs of Milwaukee County. When determining ARV, do I just run comps for other 3BRs with similar condition, square footage, number of bathrooms, size of garage, etc? Or is there a discount for the 3rd BR being in the basement? How big of a discount?

Any thoughts or insight would be much appreciated!

Thanks
Mike

[Rebecca Knox]

That's a good question because in my experience, for appraisal purposes, I was informed the below grade level is not counted in the square footage and the rooms are not added to the room counts; however, the appraisor will count it as a finished basement. 

I learned this from a Tri-level deal in New Berlin where multiple appraisors would not count the below grade level square footage (which of course was finished) and that made a significant difference in how it actually appraised vs. what we forecasted it would appraise at.