The time has come to sell your house, but after more than a few years living there – and a little wear and tear – it doesn’t exactly look like the freshly flipped homes or renovated beauties you’re seeing listed online.
To appeal to the widest range of buyers, you might want to make some updates, freshen up the yard and stage a few of the rooms. But you’ve seen properties in your neighborhood bought up by builders and demolished for new houses to be built. Maybe selling your home as a teardown would save you the effort of fixing it up, while getting you into your next house sooner.
Particularly in popular neighborhoods and areas where undeveloped space is limited, purchasing existing property for the sole purpose of building a new structure on the land is fairly common. In many cases, developers and building companies will redevelop multiple properties in a neighborhood, knowing buyers will eat up new, bigger homes where midcentury ranch houses once stood.
But with real estate inventory tight nationwide and many buyers looking to renovate existing houses that need work, is selling your home as a teardown the best decision for your bottom line? Here are four things to think about if you’re considering selling your house for redevelopment.
Defining the Teardown
While a home’s condition might seem to be the biggest indicator of whether it’s a good candidate for a teardown, location really plays the biggest role. Brent Hall, a Realtor with Jameson Sotheby’s International Realty in Chicago, says builders target parts of the city that have the highest demand from buyers.
“If you are within a 10-minute walking distance to any train station in Chicago right now, you potentially have a teardown property,” Hall says.
Teardowns aren’t just old, outdated homes, either. They can include luxury homes and relatively new structures. The Los Angeles Times reported last year that a house sold for $35 million in a desirable LA neighborhood just to be torn down and redeveloped.
Builders also prefer a regular, rectangular lot on the middle of the block. An irregular lot shape, small lot size or corner location can make redevelopment tricky, says Matthew Stanley, president of Legendary Custom Homes in Cincinnati.
“A builder would within a second be able to look online, look at the aerial of the area and say, ‘Yeah, this has potential,’ or, ‘No, this lot has this, that and the other thing,'” Stanley says.
Hall notes builders in Chicago are keen on putting in properties with two, three or four units where a single-family home previously stood because they yield a higher net return.
In Lake Geneva, a resort community in southern Wisconsin, consumers are purchasing teardowns with the intent to keep the home they build. David Curry, president of Geneva Lakefront Realty, says the appeal for those buyers is to build exactly to their specificationsin the midst of a tight market.
Curry says buyers approach a purchase with this plan: “How about I try to buy dirt for $2 million, and then I’ll build my own home for $2.5 million, and then I’ll have a product that the market doesn’t readily offer me.”
Foregoing the Market
If you’re in a neighborhood where builders are particularly active, you may have already gotten a knock on the door or letter in mail asking if you’re interested in selling. Stanley says he receives many calls from sellers to bring his attention to a property as well. When it’s the right kind of property, most builders are happy to make an offer on a home – often in cash – that makes the process simple, quick and free of commission paid to any real estate agents.
[See: 10 Secrets to Selling Your Home Faster .]
If you have no interest in testing the market to offload your home, or if you’re selling the home as part of a deceased loved one’s estate, this may be the best option to get the transaction done well and quickly.
“Some people want to work with builders directly, just because it can be a very easy transaction,” Hall says.
Contacting a builder directly is also an option when your property has issues you expect to be a sticking point for other buyers. Stanley says he worked with one homeowner who was worried about her leaky roof, and he was able to reassure her the home’s deficiencies wouldn’t impact a deal.
“It doesn’t matter if the sewer is backed up, it doesn’t matter if the foundation is bowing in. [Builders] just make it easy on [sellers], when a lot of people are worried about it,” Stanley says.
Letting the Market Decide
But if you’re looking to get as much money as you can out of a deal, the current housing market makes placing your home on the market an even more appealing option. Builders will likely still bid on the property if they really want to redevelop the lot, and you open up the space for competition from other investors and interested homebuyers.
Last July, The Seattle Times reported a house infested with mold that had unstable floors and ceilings in West Seattle sold for $427,000 in May 2016 – after 41 offers that more than doubled the asking price. The low asking price and prime neighborhood location were credited with drawing so many interested buyers to the property.
In February, The Seattle Times updated readers on the property’s status: The house was demolished to the foundation, rebuilt and was expected to sell for around $1 million.
“If you want to get the most money possible, you should always put your property on the market – there’s no question,” Hall says.
Consider a Little Work
In the right location, today’s seller’s market makes it so you could put your home on the market as-is and likely still receive interest. But if there’s a possibility you’re misdiagnosing your home as a desirable purchase for a teardown, you should think about preparing the home properly for the market, as minor updates and cleaning can go a long way. You could have your property appraised to see how it would likely fare compared to similar homes in your neighborhood, or consult a real estate agent to see if they expect more builder versus homebuyer interest.
Curry encourages sellers not to position their home as a teardown because it narrows the market only to those looking to build new, when there might be other buyers who would be happy to renovate it. No need to touch an outdated kitchen or bathroom, since a renovating buyer will likely target those rooms for first projects, but a broken stair rail or damaged window should be fixed.
“I sell a lot of bad houses on beautiful land, and I always encourage sellers to still make their bad house as nice as possible so that it doesn’t default to being a teardown,” Curry says.
And when you can sell to someone interested in keeping the existing home, “there’s usually a little extra money in it for the seller,” he says, because the investment goes beyond the dirt.