Saturday, 16 January 2021

Home Teardowns a Common Part of Real Estate Expansion Cycle

WESTFIELD, NJ  — It is something that has happened to many who live in suburban communities with increasing frequency over the last decade: You’re driving around a familiar neighborhood when all of a sudden you notice something that always was there is not there anymore. That quaint, cozy home down the street or around the corner is now gone, replaced by a massive hole in the ground.

Where once, existing residences being flattened and replaced by new structures was a relatively rare occurrence, nowadays it happens often enough that it is no longer considered front-page news — unless, of course, it’s the home next door to yours.

Ironically, the incidences of teardowns are, in part, a reflection of a phase of residential real estate called “expansion.”

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There are four cycles in real estate: Recovery, Expansion, Hyper-Supply and Recession.

“Today our real estate markets are well into the expansion phase,” said Susan Massa, a broker associate with Keller Williams in Westfield. “The transition from recovery to expansion occurs when affordability begins, first-time homeowners start to enter the housing market. Since most real estate expenses are fixed, increased revenues translate almost dollar-for-dollar into increased profits. Increased profits attract new development of vacant land or redevelopment of existing properties.

“Basic economics tells us that new supply will satisfy demand and eliminate the upward pressure on rents and land prices accordingly,” Massa said. “But here’s the twist: it takes a long time to add new inventory to the real estate market once it’s needed. By the time meaningful amounts of inventory start to come online, the overall economic expansion has been under way.”

Massa enumerated five reasons why an existing home in an established residential neighborhood might get bulldozed in the first place:

1. Repairs are too expensive.

“If the cost of repairs is too expensive, you may want to think about whether the house is worth salvaging. In many cases, a house that has been declared unsafe is demolished to make room for new construction.”

2. Cost of repairs exceeds value of home.

“Once a home has fallen into extreme disrepair, the house may even decrease the value of the property. There also comes a point when the cost of repairs exceeds the value of the home.”

3. You need land for building a custom home.

“One of the biggest difficulties of building a custom home is finding suitable land for what you have in mind. What a lot of people do is buy properties that already have houses on them. They then demolish houses to make room for their custom homes.”

4. House is declared unsafe.

“If a house has been declared ‘uninhabitable,’ you won’t be able to live there without making significant repairs.”

5. House is infested with animals and insects.

“If neglected, houses can become infested with rats, termites, bees and other opportunistic critters.”

Avoiding inspections and appraisals, or closing at the discretion of the seller, are some advantages to undertaking a complete teardown.

“For the existing homeowner who wishes to raze their existing home the end result is their dream home,” Massa said. “However, the cost, need to pay of existing mortgage, take out a construction loan, interview builders, live elsewhere which can be 12 months during construction.”

Not everyone sees the proliferation of teardowns continuing unabated. In fact, there have been fewer lately than there were just a couple of years ago.

“After speaking with some local builders, it definitely has slowed down and for the next year I’m told they are looking for home expansion projects rather than teardowns,” said Mary Rittenhouse, a Realtor with RE/MAX Select of Westfield. “The market for new construction has been on the rise for several years, with influx of  buyers mainly from New York, Hoboken and Jersey City. The demand was high and Westfield, especially on the south side, has a lot of smaller homes on good-sized lots. Also a lot of these homes are in their original conditions, so needed a lot of updating and expansion to serve the needs of the market.  Today’s buyers who are financially able to buy new or pre construction, can have a home customized to their liking, not to mention that everything is new so maintenance cost is lower.”

Would property owners be better served instead to do an extensive remodel or add-on instead of a teardown? Massa says the answer to that question depends on assessing whether a renovation is appropriate and if it is cost effective. This starts by determining the home’s present market value, hiring an architect who is familiar with zoning, interviewing and hiring a builder, and continuing to live in the residence during the renovation if possible.

“In a town like Westfield, where owners have lived there most of their adult life, bringing up their kids, and now that their kids are out of the school system, they are looking to downsize or move out of town completely,” Rittenhouse said. “They seize the opportunity to sell to these developers, hassle-free, without spending money to renovate in order to sell, and for the developers they can get three-fourths times the price of the older home since demand is there. Extensive remodeling does not make sense unless you’re an investor or you’re looking to live in the home for a long period of time. To do extensive remodeling just to sell is too expensive and the rewards are not there when comparing the cost of remodeling for home owners.”

Of course, a teardown affects not only the homeowner and eventual buyer, but also the other residents on that street, whose landscape will be irrevocably altered.

“There is always a sadness when a home is razed,” Massa said. “Once there was a home and now it’s gone.  The anticipation of what will be built and how will it relate to the area becomes a concern. But like all of us, we will adjust and welcome the homeowners.”

“I think it’s a mixed feeling,” Rittenhouse said. “Some people don’ t mind it, as it rejuvenates and brings in younger families to the area, which in turn helps business owners in town, the community, etc., and some people see it as too much of new construction versus keeping the character of the neighborhood and renovating homes, which they would prefer.”

“Not everyone sees the benefit of teardowns,” Massa conceded, “though many hope if there is no alternative, there is a sensitive blending of style and the overall character of the neighborhood. The leading opponent is the National Trust for Historic Preservation, (which) argues that it’s an epidemic that is wiping out historic neighborhoods one house at a time. As older homes are demolished and replaced with dramatically larger, out-of-scale new structures, the historic character of the existing neighborhood is changed forever.

“However, the National Association of Home Builders admits teardowns have become modus of operandi in certain areas, but counters that the new houses often breathe new life into older communities,” Massa said.


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