Tear-Downs Going Up

Is it a sign of the apocalypse when people spend $525,000 to buy an 8-year-old house just to get the lot? How about when they tear down the “old” house and spend $1.6 million to build a new one on the lot? This happens regularly in Sarasota, Fla.

Sarasota custom/luxury builder John Cannon Homes made more than 25% of its $78 million in 2003 revenue on tear-downs. “We did 15 of them last year for about $20 million,” president John Cannon reports.

This trend isn’t restricted to Florida. The Wall Street Journal reported on it late last year, citing examples in Aspen, Colo., and pricey suburbs of New York, Chicago, Los Angeles, Denver and Phoenix — wherever property values are escalating fast and desirable home sites are in short supply.

“In some of these neighborhoods, there’s more value in an empty lot than in the lot with a house on it,” Cannon says. But, he cautions, tear-downs can be tricky. “We’ve got to be sure to meet regulations on lot coverage and height. And the new Federal Emergency Management Agency guidelines are tough. The old house may have been built at 6 feet above sea level, but FEMA now wants the foundation at 11 feet.”

However, Cannon says these jobs are great to get, especially when the client buys the lot and carries it through demolition and construction.