What to do when a builder wants to buy your house

You’ve probably seen signs around town saying, “We Buy Ugly Houses!” or “We’ll buy your home for CASH – FAST!”.  Maybe you have received a post card from a Cincinnati custom home builder or even better an post card from Legendary Custom Homes looking to purchase your home.  Or maybe you’ve even gotten a personal letter in the mail from a custom home builder looking to buy your property. These marketing materials solicit different reactions from homeowners. Some immediate dismiss the offer and don’t act. Others think long and hard about the opportunity but never act. And then there are those who pick up the phone to learn more.

Selling your property to a builder – who will then tear down the home to build a new one – isn’t for everybody. So how do you decide whether it’s a route you should go? It’s a common question with no single answer.

Generally speaking, here’s what we suggest a homeowner do when contacted by a custom home builder who wants to buy their home:

Start by determining what your home is worth.

 One of the biggest mistakes homeowners make when selling to builders is not doing their due diligence in advance. As a result, many homeowners unload their property for a fraction of what they could have gotten (from other builders, included!). Don’t assume the first builder who comes to you is willing to pay the most.

Instead, figure out what your home is worth from the outset. You can do this a few different ways. You might hire an appraiser to give you an impartial evaluation. This will probably run you a few hundred dollars. Another option is to ask a handful real estate agents to come look at your home and give you an idea of what they would list it for if you wanted to sell it on the open market.  Make sure they are being realistic about pricing and not just trying to earn your listing only to turn around and talk with you about dropping your price. Real estate agents should be able to give you an idea of what renovations or improvements you need to make before selling your home at the price point you had in mind—advice that an appraiser typically does not offer. Most listing agents will give you their opinion of value for free.

You may find that your home isn’t worth a whole lot without making substantial upgrades. But your land value might be really high. This could make your property a great teardown rebuild candidate.

Figure out what your property is worth as a teardown rebuild.

 If you’re thinking of selling to a builder, you need to determine a price that you’d feel comfortable with in lieu of listing on the open market. Agents can help you set the price point for your teardown rebuild.

Evaluate your neighborhood first. Builders love tear downs in established neighborhoods with good schools, low crime, and access to local commercial districts. They tend to look for older homes, as well. Consider this: in the 1950s, the average new build home was just 1,000 square feet.  Today, home buyers are looking for homes at least 2.5x that size. If you have a smaller home that sits on a good-sized lot in a desirable community, this will certainly influence how much a developer is willing to pay.

You should also look at what other teardowns have sold for in your neighborhood over the past six to twelve months (if any). Then consider what types of new homes are being built and how much they’re selling for. All of this information will help you understand the value of your lot.

Talk with several teardown builders.

 Another common mistake homeowners make: they decide to sell to the first teardown builder that makes them an offer instead of testing the market among other homebuilders, as well. Reach out to any custom home builder that have contacted you, but also get in touch with the other builders who have built homes in your neighborhood. The latter will have a strong sense of the market and there’s a good chance they really like the area if they’re doing business there already. This could work to your advantage, particularly among builders who have previously been active in your neighborhood and realized strong returns.

Consider potential cost savings.

Some people might try to persuade you not to sell your property to a teardown builder. They’ll tell you that you’re giving up too much equity; that builders always undercut you. But these people are overlooking the potential cost savings associated with selling to a builder READ:  Cost Savings of Selling to Teardown Builder.

First and foremost is the commission you’ll save. Selling a home on the Multiple Listing Service (MLS) requires you (as the seller) pay a commission to both the listing agent and the buyer’s agent. This can cost anywhere from 4 to 7 percent of the sales price. On a $200,000 home, this means you could be paying upwards of $14,000 in commissions alone! Now, if you had to put $50,000 into renovations to sell the home, you’re walking away with even less. A builder won’t ask you to put that money into the home (or suffer through the laborious renovation process) since he’s planning to tear down the home, anyhow. It could take you a while to sell the property on the open market, and during this time you’ll incur carrying costs (taxes, utilities, insurance, etc.) that you could forego if you sold quickly to a builder. These costs are only the tip of the iceberg.

When all is said and done, the home you thought you were selling for $200,000 could translate into less than $135,000 in your pocket. Suddenly, selling to a builder for a discount doesn’t look all that bad, does it? At Legendary Custom Homes, we buy people’s houses in and around Cincinnati. We’ve saved Madeira, Hyde Park, Mariemont and Montgomery homeowners thousands of dollars in the process.

 Evaluate your personal goals.

We’ve found that Cincinnati-area homeowners sell their homes for different reasons. Some might be looking to buy a bigger home; others may be looking to move into a retirement community. Some might be going through a divorce and are forced to sell. And others still may have fallen underwater on their mortgage. The reasons for selling are endless, but in almost every case the reasons are highly personal.

When deciding what to do when a builder wants to buy your house, consider your personal goals. Are you looking to sell, and if so, why? How quickly do you want to sell? Are you willing to take on necessary repairs or delayed maintenance to reap top dollar from your home if you decide to sell on the open market? If you want a quick, hassle-free sale then selling to a teardown builder can be a great strategy.

Hire a team you trust.

 Once you make the decision to sell to a teardown homebuilder, be sure to hire a team of people you trust to assist you with the sale. That might include calling a real estate closing company to understand the closing process and potentially insisting on your title company.

Insist on a substantial deposit.

 One thing you need to know about builders is most don’t have an emotional attachment to properties. Some homebuilders will walk away from a deal if they find a better deal a few days later. This puts you back at square one. Protect yourself by requiring the developer put down a substantial deposit.  The higher the deposit, the less likely the builder will walk away from your deal.

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As we mentioned before, selling your home as a teardown rebuild isn’t for anyone. But if you’re thinking of going that route, take a systematic approach to ensure you reap the greatest benefit. There are a lot of unscrupulous builders out there – some that definitely can’t be trusted. There are also a lot (and we mean A LOT) of really tremendous custom home builders out there who will work with you to craft a deal that works for everyone involved. Doing your homework is critical.

Interested in learning more? Give us a shout. Legendary Custom Builders specializes in teardown rebuilds. We’d be happy to have a no-obligation chat with anyone who wants more information about the process of selling to a builder.

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5 Comments

  • I am interested in selling my home in Burbank IL

    The homes on each side of us were torn down and rebuilt 10- 15 years ago

  • May I ask a question? Thanks; ) I own two lots adjacent, get inquires all the time from builders, etc. My neighbor behind me said if I was thinking of selling to let him know and he would go in with me. Question is it it best to sell mine separately to get most money for myself and in with him? It is my retirement money, need all I can get.

    • Wow! Very tough question. It really all depends. If combined it means a big deal for bigger developers you could get more money but it could also back fire. Reach out directly in our contact form if you have the plot plan and area and I might be able to guide you a little more. Sorry if that is not the answer you are looking for but it’s kinda a tough question to answer.

  • We are interested in selling our house to a builder. Don’t know what steps to take. How do I get a list of builders that would be interested in buying my house for a tear down? I live in Fairfield CT

    • Best thing to do is drive around and see who does teardowns in your area. Here in Cincinnati, that varies by neighborhood. Then call them. Do business with who you feel most comfortable with. Ask for references! We have TONS of references of people that we have bought houses from. We make it super easy and we are upfront and we come through on our deals. I am also a real estate broker and I am AMAZED at how lightly today’s home buyers take their contracts. Which is why I think a lot of people sell to builders instead of today’s home buyers. My word is all I have and when I write contracts they actually mean something. Thanks for asking! Feel free to reach out anytime!