Could Your Property Be Worth More If You Tear Down Your Home?

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Sellers take note: The land beneath your home could be worth more than the home itself—in some cases a lot more.

In some big cities, particularly along the coasts where land is at a premium, zoning often permits an apartment building or small condo complex to go up where a small, single-family home once stood. And that can make the land itself, and the possibilities it presents, significantly more valuable than the house sitting on top of it.

More and more developers and builders are taking note. Teardowns accounted for 10.2%, or 79,000, of all of the new home construction started in 2016, according to the National Association of Home Builders. That’s up from 7.7%, or 55,000, in 2015.

In a housing market defined by skyrocketing home prices and razor-thin inventory levels, teardowns are becoming more common.

“It’s so hard for developers to acquire land to build on due to environmental regulations and getting zoning approval,” says economist Paul Emrath, NAHB’s vice president of survey and housing policy research. And that’s what makes teardowns so attractive.

Traditionally, a lot is worth only about 10% of the overall property value; the home is worth the remaining 90%, Emrath says. But in some costly parts of the country that math has changed.

“If you have a parcel of land and … a single-family home and you can get rezoned for a multifamily [project] and put up a [condo or apartment] high-rise … then that’s going to be more valuable,” especially in a red-hot housing market, Emrath says.

Teardowns aren’t just homes. Sometimes, they’re empty school buildings or decaying commercial structures that developers want to turn into multiple homes.

Or they might be aging homes in bad shape that the new owners want to replace with newer, larger residences—like a McMansion.

“Trying to renovate it or bring it up to what you want might be much more expensive than just starting over,” Emrath says.

The most teardowns were in the West, the most expensive U.S. region, where about 33,400 structures met the wrecking ball in 2016. Quite a few structures, 23,800 of them, met their makers in the South as well, followed by the Midwest, at 12,300, and the Northeast, at 9,800.

Teardowns peaked in popularity in the late 1990s and early 2000s until the financial crisis hit. Now they are not only surging again, they are also being fundamentally redefined. In the hottest markets, it’s more than just substandard homes being torn down.

In San Francisco, plenty of developers and regular homeowners are buying homes that aren’t even in bad shape simply to get the land, says Patrick Carlisle, chief marketing analyst at Paragon Real Estate Group, in San Francisco. That’s why wannabe homeowners are dropping small—and large—fortunes on relatively small homes.

“It might start out as a 1,400- to 1,600-square-foot house,” he says. “Yet the zoning and building code will allow you to put a 3,200-square-foot house on the land.”

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