Wednesday
September 20, 2017

Get Up to Speed on Teardowns

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Get Up to Speed on Teardowns

Balance sellers’ emotions and buyers’ expectations when selling a home for demolition.
"new construction" sign in front of dilapidated house

Real estate practitioners are generally so focused on beautifying and staging listings to enhance their appeal that the prospect of marketing a home as a potential teardown can be awkward for you and the seller. It’s important to be extra sensitive to the fact that sellers, especially those in high-demand areas, may not even realize the house they’ve loved and fussed over for years is a good candidate for being razed to make way for new construction.

But how do you know when a home is likely to be headed for demolition? If a home needs a variety of major upgrades, renovations may cost more than the home is worth when evaluated against nearby comparable properties. That makes demolition a more appealing option for buyers.

In addition, the neighborhood may be trending toward teardowns rather than remodels. If more than one-third of homes on a block are new, consider that a sign, says Ashton Martini, broker-associate at Martha Turner Sotheby’s International Realty in Houston.

Make the Seller Comfortable

Sellers are often concerned that explicitly marketing a home as a teardown means money lost in the transaction, since buyers will expect a rock-bottom price. But you can offer valuable perspective about the likely financial benefits. They are usually cash offers, which keeps bank appraisals, inspections, and repairs from being roadblocks to the sale, says Charlie Shook, GRI, broker-owner of Coldwell Banker Shook in Lafayette, Ind. “By default, a teardown becomes good news,” he says.

When it comes to pricing strategy, share details of your approach with clients. You’ll want to look into market prices for vacant lots similar in size to your clients’ property and to list prices for new construction. “This gives the agent a baseline for what would probably be built on the property and should be a guideline,” says Martini. If local developers say they spend one-third of the total sale price of a home on the land, price your listing accordingly.

No less important than discussing financial considerations is recognizing the seller’s complicated feelings related to listing the home as a potential teardown. “Show your empathy by acknowledging that the home and their memories are special to the seller,” Martini says. “Understand sadness doesn’t go away—it’s just managed.”

Learn more about rules affecting teardowns at realtorm.ag/teardowns.

Prepare Buyers for the Unexpected

Buyers drawn to the “bargain” of a teardown may be less familiar with the more arduous steps involved in these transactions related to zoning, permitting, deeds, historic preservation, and building codes. The key is to research the rules in your area for both demolition and new construction to help your buyer make an informed decision. “Keep in mind some costs for renovating or building can be hidden,” says Tim Sheahan, principal and partner of CONLON/Christie’s International Real Estate in Chicago. “Every time you dig down or open a wall, you could find a new surprise.”

For example, rebuilding on a narrow lot may mean buyers have to pay to protect neighboring properties during construction—a cost that could range from $20,000 to $40,000, Sheahan says. When considering older properties, buyers need to be mindful of major construction and zoning code changes since the home was built. Sheahan has seen cases where homes more than 100 years old had to be rebuilt on a smaller footprint to comply with modern zoning laws.

Buyers who are considering a teardown often will be competing with deep-pocketed builders. While they can find themselves at a financial disadvantage, sometimes a personal letter to the seller can give their bid an edge. Even when the house is likely to be torn down, “many sellers would love to hear that someone has an emotional tie to the property as they do,” Martini says.

At the construction phase, you’ll win buyers’ appreciation if you can offer recommendations for contractors and other vendors. Martini provides his clients with names of skilled demolition and salvage crews, architects, and builders. Such recommendations not only assist your buyers in their current process but also help to keep you top-of-mind when your clients are ready to sell in the future.

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