How to sell a teardown house?

Fortunately there are only a couple ways to sell a teardown house and all of those ways lead to a cash buyer. Unlike other home sales where selling the home on the market to a traditional home owner who will obtain bank financing when it comes to truly teardown houses there are no traditional banks who will approve a mortgage.
The absolute most important thing when considering how to sell a “teardown house” is the assessment of whether that home really is a teardown. Because if all roads lead to a cash buyer and listing it with a realtor just doesn’t make much sense since a cash buyer will need to purchase it anyway, why pay those realtor fees. Below we’ll cover how to assess whether the home is a tear down and the possible options and way to get the best deal if it is.

What makes a house a teardown?

Usually, the condition of the structure of the home in addition to the buyers you’re speaking to will determine whether the home is a teardown. For a buyer such as us, as a general rule of thumb if the cost to teardown and build a new home is 80% of what it would cost to renovate the home we’d rather tear it down and build a new home. That would mean that demoing the home (demolishing the structure usually using a bulldozer or other heavy machinery) and building a new one would likely return more money even though it will take much longer. We will leave you with a disclaimer that purchasing a teardown home is not purchasing a fixer upper and should be done by someone with experience. It’s a fine line between selling a house in poor condition and selling a teardown home but there is a difference.

Here are the most common reasons why a home would be considered a Tear-Down:

Create a Numbered List of Items:

Fire Damage:

This is probably the most common reason a home would be a “teardown” because the fire damage often creates issues like foundation issues and the cost to renovate being too high. The home can also have smoke damage which is very difficult to remove and may require the home to be built new.

Cost of fixing the home is more than tearing it down: This would mean that the house is in need of such repair and renovation that the cost to build a new house is only 20% more than the cost to repair it. In that case we would prefer to build a new home. This is more common when the home value is under $150,000

Foundation issues:

Often this comes up on stick built houses that have a crawl space or other way of supporting the structure of the home. When a home has foundation issues that means something such as the wood or possibly the ground underneath the home is weak and the home starts to sink into the ground. Another common reason a home has foundation issues is the home is located near an airport or exposed to extremely loud sounds that cause the ground to shake.

Zoning change:

This one is common if the home is located near an area that is changing from a residential area to a business area. If the zoning now allows for someone to build more houses on the same lot that might be a reason to tear down the existing home and build a new one.

Unanticipated Natural Disasters:

Here what we’re talking about is flooding or storm damage. We are in Florida after all and we have our fair share of hurricanes here which bring with them flooding and other wind damage, if this damage becomes excessive we’d enter the category of number 1 where the cost to renovate the house is almost as much to just build a new one.

How do you value a teardown?

The easiest way to value your property if it was a teardown would be to search the property appraiser website for recent sales of vacant lots with similar square footage to yours and nearby. You can also look at the land value as determined by the property appraiser as this can often give a good baseline since that number the county already takes into account what similar vacant lots have sold for. If you’re curious how the builder who bought those came up with the price check out below in what will a cash buyer pay for my tear down.

Pro tip: You can sell a home that is a teardown if you still have a mortgage on the property but the amount left on the mortgage cannot be higher than the value of the land.

Who would want to buy my Tear Down House?

Cash home buying companies who specialize in building new homes would be the # 1 choice and also who would pay the most for your teardown house. Most cash buying companies do not truly deal with teardown homes so make sure you find a teardown experienced home buyer. There are also times where the city may “condemn” a home that is in such disrepair that a requirement to tear down the home might take place. If the home is not torn down within the timeline they set, the city can step in and demolish the home themselves.

What will a cash buyer pay for my Tear Down Home?

Here is a simple breakdown.

After Repair & Resale Value $300,000
Cost to resell home 9% (closing costs, realtors fees) = $27,000
Cost to Demolish + Build new home $150 /sq ft. and 1,200 sq ft home = $180,000
Profit company looking to make = $50,000+
WHAT IS LEFT ? $43,000 …. This is the value of the teardown property

If you decide to sell the house on the market you’d pay 9% of the $43,000 in realtors and fees so if you’re home is a teardown its better to sell it to a cash buyer but make sure its one who has experience with building new homes because not every cash buyer is capable of building a new home.

Can you sell a tear down house with a mortgage?

Yes, you can sell a teardown house with a mortgage and it can be done relatively easily when the value of the land is more than the amount left on the mortgage. When it gets difficult is when the amount left on the mortgage is higher than the value of the land. If this is the case there are still a few options such as a short sale of the home, where you speak with the bank and explain that the value of the home in its current condition is less than the amount left on the mortgage. Unfortunately you cannot sell a house that is a teardown to anyone except a cash buyer because the home would not pass the inspections required by the bank.

Is it better to sell a lot with or without a Tear-Down House?

Usually it is better to sell with a teardown house than to teardown the house yourself and sell the lot. This is because the builder who is going to tear down the home will already be including in their figures the cost for permitting the demolition and often the builder will secure a better price to demolish the home than the ordinary homeowner could do. In recent times teardown homes have even been sought out by investment companies due to the housing shortage. We’re no teardown experts here, but on the few teardowns we have done the cost was between $5,000-11,000 to complete the demolition including the permitting required.

How To Sell a house that is in tear down condition (step-by-step)

Create a Numbered List of Items:
Assess the current condition: This can often be done by a qualified home inspector who can determine whether certain foundational issues are present, or other conditions as described above. Calling a few cash buyers to walk through the property can also be a good way to get a few opinions as to the conditions.
Look up your lot size: Search for your home on the property appraiser website and find the lot size.
Learn about the market for new built homes near you: Do some research to see whether there are newly built homes being built nearby to you. If so that means there are likely quite a few cash buying companies who’d be interested in your home even if it was a teardown.
Verify mortgage information (if any): Reach out to your bank if you have a mortgage and ask them for a preliminary pay off quote. This will give you an estimate of how much is owed on the mortgage.
Reach out to cash buyers to get offers: Here you can follow our steps in selling a home to a cash buyer on how to find cash buyers near you that would be interested in purchasing the home.
Vet these cash buyers: This is probably the most important of all steps because selling a teardown home requires a very particular type of cash buyer who is familiar with building new construction homes. Remember only about 10% of cash buyers actually are familiar with building a new home from the ground up.

Conclusion

I know this one was a little more boring than usual but whether your home really is a teardown or just in need of massive repairs will make a huge difference in the amount you’re able to walk away with from a cash buyer. Hopefully you’ll be able to determine whether your home truly is a teardown home and then the steps you can take to sell your home even if it is in fact a tear down home. We’d be happy to guide you in the right direction and determine whether we’d consider the home a teardown home or just in need of fixing, so fill out the form below and someone from our team will give you a call right away.