Yes it will. Below grade living space is treated differently from an appraised value perspective. If there is no window, you have a whole other issue. If you are going to add a second level with a master suite, that will definitely increase your property value. It would be less expensive to finish your basement than add a second floor. Do you have money to do either project? If you don't have enough equity to cash out or take a home equity loan, you may want to see if a local bank would give you some kind of construction loan. What would you do with the 3rd bedroom on the main level.