The price should be lower if there is a tear down structure. The expense of the teardown should be deducted from the price. However, as you can see from all the answers, a market valuation calculation is rarely that simple. Demolition expense is usually just one of many considerations.
I’m a real estate developer. We often buy small tracts that adjoin our larger holdings. We pay multiples of “market value” and disregard demolition expense if we need the property for assemblage. We may be able to move a road or some utilities and save a substantial amount of money on the total development. Our market value is different and higher than what anyone else would pay. There is a real cost to not acquiring the assemblage tract, so we disregard typical comparable sales in most cases.
This same scenario plays out to a different degree in many land negotiations. Logic often goes out with the wash. It’s more art than science in many cases, especially with vacant land.
Sometimes the arithmetic doesn’t seem rational. When we bought our present house it was in a state of disrepair. The previous owners had built a big RV garage with an apartment above, and moved in while remodeling the main house before losing it to the bank.
When we purchased it, it was as a 5000 square foot shell of a house with a 3 car garage, a roof, and windows, but only partial siding, and no interior plumbing, electrical, or drywall.
It’s on a nice waterfront lot overlooking the Puget Sound.
By a basic mathematical formula we should have paid land value plus the value of the RV garage/apartment ($200,000?) plus the value of the installed water, septic, and electrical service ($60,000?) plus something for the partially finished house.
But we only paid land value plus $30,000. Go figure.
Well in Chicago the city it depends. Real estate is at a premium we are being offered a large amount to knock down our house. Down the block they have two of these and their building $5.2 M houses on them. A few developers are changing the neighborhood and bidding war’s are happening. We have a 1.5 lot which is very rare to come to market.
We bought it in 2015. Real estate took a dive around 2009-2011 during the financial crisis and had pretty much recovered by 2015, but the bank that foreclosed this property mismanaged the asset horribly. For one thing, the property wouldn’t qualify for conventional financing because of its condition, but the bank accepted a series of offers contingent on financing, all of which offers ultimately failed. Then they took it off the market for an extended period.
Somehow I came across the listing and decided to negotiate directly through the listing agent rather than bringing in a buyer’s agent. Given the opportunity to double dip the commission, the agent did everything in their power to insure I was successful.
Our cash offer was accepted, we completed the improvements and, when it was complete we put one of those wonderful 3% mortgages on it.
So yes, we came out ok. Probably worth triple what we’re in it.
Hugs on the water problem. My neighborhood has also seen problems with tree roots (ginormous trees, so you really can’t accurately map what’s underground until some ambitious McMansion owner starts clearing the backyard.) What a mess. I hope your runoff isn’t damaging your property.
Sometimes you hit it right. You take a chance and it works out for the better, through luck, timing, and hard work. I’m glad you guys did that, as opportunities don’t come around here like that often, and it sounds like it was hard for others to recognize the potential.
We also like to purchase through a listing agent when we really want a property, it does seem like they make sure it happens. We bought four short sale/foreclosures in 2008/2009 in the area, and one listing agent even went down to the sheriff’s office with a check (from us) to pay off the seller’s child support lien, so the bank could sell us the property. Took a chance we were just paying his ex-wife (which was fine), but it worked out.
Hallelujah for 3% mortgages. May they come back soon.
Maybe. It depends on what the new owner plans to build there. Septic systems are sized to the house in some way (here it is by number of bedrooms). In addition, your septic has to be a certain distance from the house, and if the new build is much larger, that might not be possible (depending on the size of the lot).
We know someone who thought that buying a house that needed a ton of work or was tear down should just be the cost of a vacant lot. We politely explained that the current owners had paid for utilities to be run, town water and sewer lines to be run, etc. None of that was free.
Ah. Then on the face of it, if there’s no permitting restrictions, seems like more of an expense to have to tear everything down if they’re not keeping anything and it should be cheaper than the empty lot. However, there’s no idea what the sellers are thinking, and seems like the experts here have great wisdom.
Another thing to consider is the foundation. Foundations last a very long time and often can be reused, assuming the new home can be designed to use all or part of it.
A couple years ago we bought a building lot with an abandoned foundation. We bought the lot at a discount because the brokers thought it was an expense to be dealt with. We asked the city inspector to take a look at it and he approved it to be used. We designed a house to fit on it and came out well.
