How Much is a Garage Worth?
Remember that refinance we completed a little while back? Well, the lender provided us the appraisal they used as a basis for issuing the loan.
There’s lots of great material inside an appraisal document that gives insight into how an appraiser (and presumably, a typical buyer) values a home. Since we’ve been doing a lot of work on our garage recently, I thought I’d check out how our garage impacts the total value of our property.
Note that these values are only really valuable to us (unless, of course, you happen to live close to Baltimore County, MD). To find out values in your area, you need to contact an appraiser and ask about average costs in your area. They’ll likely tell you for free.
Here’s how things shaped up for us…
Garage Value from a Cost Basis
The appraiser used two methods to value the home: cost basis (the replacement cost of the home new, less depreciation), and comparative sales basis (price based on the sales of other homes in the community). Here’s the cost basis side first:
In our area, unfinished garage space costs about $20/sq. ft. to build new, according to the appraisal. Our 528 sq. ft. garage yields us a total value of $10,560, or $5,255 per garage. Depreciation on the entire house was taken at 20%, so that puts us at about $4200 per garage after depreciation.
Using this method, the key is to know about how much a builder would charge to add a garage to a home on a square foot basis, and how large the garage will be.
Garage Value from a Comparative Sales Basis
In the comparative sales section of the document, the appraiser uses an estimated value of $4000 / garage when adjusting the value of our home relative to other’s homes.
This tells us that our garages are about average size (since the comparative value basis is near our build cost basis), and that the average value differences in house values across our region, when adjusting for all other factors, yields about a $4000 per garage final difference.
Ultimately, comparative sales was the method of choice for valuing our home, as it gives the best indication of how recent buyers have behaved in our market, and is the best indicator for purchasers in the near term.
Should We Convert the Garage to Living Space?
To answer this question, the appraisal can really come in handy…
According to the appraisal, living space in our area goes for about $90 / sq. ft. Given 20% depreciation, that’s about $72 / sq. ft — or $55 / sq. ft. more than the value of the garage. At 525 sq. ft., it would seem like we stand to make $28,875. We could probably finish the space nicely for well under $15,000 after windows, doors and electric, for a net increase of $14K in value.
Will we do it? Probably not. First, most homes in our community have garages, so we think we’d be at much more of a disadvantage than the appraisal indicates. Its one thing not to have a garage. It’s quite another if you’re the only one in the neighborhood who doesn’t have one. Second, we really (really!) want to park the cars in the garage once we get the basement finished, so there’s no way we’re converting!
What do you think? Would you convert your garage to living space for a 14K value improvement? Do you think a conversion would be worth it?
Comments & Conversation on this Article...
7 Responses to How Much is a Garage Worth?
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May 8th, 2009 8:34 am
Definitely not. Especially since we live under the canopy of several 100 year old cottonwood trees that layer everything below them in sap!
May 8th, 2009 9:38 am
You could always park your cars in there.
May 8th, 2009 10:25 am
No, I wouldn’t convert it. I would definitely maintain it!
As someone who recently financed a car for the first time, I have garage envy! (We only have a carport. An electrical short or chemical fumes took our one-car garage shortly after we bought the house.)
After 22 years without one, we’re actually talking about the logic of building one.
May 8th, 2009 11:11 am
Very wise decision making in your case. Thanks for the tips.
May 8th, 2009 11:42 am
$20/sq. ft. is too low to build a garage complete with electrical, concrete, excavation and permits. The minimum these days is about $25/sq. ft. for a no frills very basic garage
Converting garages typically ends up costing quite a bit. Typically they are not framed to today’s standards when it comes to the energy code and/or structurally when it comes to living space.
I tell customers that it should be a last resort if you don’t have space for an addition. The lost value due to losing the garage plus the expenses that will inevitably come up typically don’t pay off.
Great post Fred!
May 8th, 2009 9:09 pm
Todd – good insight from the pro perspective. $20 / sq. ft. seems far too cheap to us too, which begs the question on reliability of the cost-basis model. That’s probably why appraisers use the comparative sales basis most of the time – much more accurate picture.
Even though my model comes up $14K ahead, it just doesn’t seem to me like we’d realize that value, anyway. It’s probably much closer to a wash.
May 8th, 2009 9:51 pm
Fred,
The cost approach seemed low on our last appraisal as well. I don’t think most appraisers really have a good handle on current construction costs.