It’s getting harder than ever to keep up with the Joneses in Louise Davies’ Pacific Palisades neighborhood in Los Angeles. In the last year nine houses were sold for $1 million to $2.5 million. Buyers are spending an additional $2 million to $5 million to tear the houses down and build new ones two to three times as big. This is not new, said Davies, a real estate agent.
Over the last five years, about 25 percent of the older houses have been replaced.
While the dollar amounts in Davies’ neighborhood are astounding, the “teardown” phenomenon itself is not. As land values increased across the country in the real estate boom of the 1980s, a major portion of the value of small houses in older, close-in suburbs was in the land, not the house. In many places, including Los Angeles, Washington, D.C., and Chicago, buying a house and tearing it down before building a new one was not significantly more expensive than buying an empty lot. It also gave new home buyers the option of locating in well-established, close-in suburbs with no empty lots, but good schools and relatively easy commutes.
If such a venture looks attractive, where do you begin? “First make sure that the (money) numbers work,” said Todd Hitt, a Virginia home builder who has built a number of teardown projects in close-in Washington suburbs. “Key from a buyer’s perspective is to insure you are comfortable with the value you’re ending up with.”
The general rule of thumb in the Washington area is that the value of the new house and lot should be about three times that of the original house and lot, Hitt said. For example, if the old house and lot was worth $120,000, the new house and lot should be about $360,000. In some cases, buyers want to add as much as $90,000 in extras. That would bring the total in this example to $450,000. Before signing on the dotted line, Hitt said, you have to know the breadth of the market for this price range in your area. Will you take a bath at resale if you sell in two or three years? Five or six years?
Developer Joseph Lichtenberger, whose West Chicago firm has built houses on many teardown sites in recent years, says it’s a fair rule of thumb for the Chicago area, too. “If you are looking at what will affect your resale value, those are good guidelines. Usually, you don’t want to go lower (than that triple amount). It would be almost like underbuilding.”
But he says that for some clients who are doing teardowns in areas that are dear to them, some of the economics can be secondary. “In a lot of cases, their kids may be settled and they just don’t want to leave the neighborhood. They say, `This is where we have lived. We have enough money and we’re going to spend a lot more money.’ ” In these cases, the emotional value is very high, he said.
Lichtenberger says that his business is about equally divided between teardown/new construction and remodeling. Although he says he hasn’t seen the pace of teardowns change appreciably in the last couple of years, he says that the recent proliferation of restrictions placed on them by communities has affected his clients’ decisions. “There is still a fair amount of teardown but I am starting to see remodeling catching up.”
In Hinsdale, where the teardown phenomenon started 10 years ago, residents who have owned their houses for about 10 years often have massed enough equity to tear it down and rebuild on their own lot, noted Mike Meissner, an architect who has designed teardown projects there.
If the money numbers work, the next step is checking current and pending zoning regulations for building heights, lot setbacks and floor-area ratios. In terms of what you can legally build on the lot, the lot setbacks determine the dimensions for the maximum allowable “footprint”–the outline of the house at ground level–and floor-area ratios define the maximum size house in terms of square feet. Since the house you want to tear down was built, the zoning rules may have changed many times, in some instances in response to the teardown phenomenon itself.
In some Chicago suburbs, where teardowns have become common, many of the long-term residents resent the imposing nature of a large house next to a modest bungalow or one-story ranch. This is especially true since “the zoning typically allows for much more bulk than was originally built, and this can often result in unfortunate conditions,” said Chicago-based architect Carl Hunter, who has worked on similar projects. North suburban Glencoe now has a “daylight plane rule” to prevent new houses from putting existing ones in shadow. Highland Park, another north suburb, has increased the minimum size of side yards to maintain visual continuity along the street, and prevent a new and much larger house from overwhelming the neighbors and looking like a cowbird in a nest of wrens.
In Northbrook, Neil Fortunato, president of Fortunato Builders in Chicago, purchased the property at 2026 Walters Ave. with the intention of building two new houses on the double lot. First, though, the existing 19th Century farmhouse had to be removed.
“But because it was a cool old house, I didn’t want to tear it down. So I put a banner up offering it for free to anyone who would move it. I got hundreds of calls,” said Fortunato.
The lucky “winner” of the home was Wayne Berman, who moved it to a site on Shermer Road, several blocks away, last June.
Fortunato is completing the construction of the first home to be built on the Walters lot. The 3,300-square-foot brick-and-cedar residence is scheduled to be finished in February. It is priced at $559,000.
Thomas Poupard, director of planning for the Village of Northbrook, said the village is reviewing its rules on what can be built on teardown lots. “Sometimes the house is too large for the lot. Both the sheer mass and the architecure may be incongruous in the neighborhood,” he added.
Besides changing the look of the neighborhood, teardown projects tend to raise adjacent property values and, consequently, property taxes. This can also cause resentment, even though the owners of the older houses will eventually realize a financial gain when they sell.
While the money numbers and the zoning restrictions are fairly straightforward calculations, the design of the actual house can be anything but. Besides the building constraints imposed on your own lot, you have to look at the neighboring lots and ask yourself, ” `What is the worst thing they could do?’ and assume they will do it,” said Bill Sutton, a Virginia architect who has designed a number of these projects in the Washington area.
For example, your side yard may face the neighbor’s garden now, but a new house, built as close to the lot line as yours is, may be less than 25 feet from your house. When possible, Sutton locates major living spaces–kitchen, family room, living and dining rooms, and the master bedroom suite–at the front or rear of a house and puts secondary spaces–laundry rooms, garages, dens, bathrooms, walk-in closets, and smaller bedrooms–along the sides.
Hunter characterized a teardown type of house as “introspective.”
“You can’t rely on the neighbors’ open space as part of yours, so this type of house has to be more introspective. Within the property lines, I design the house as if the side walls are solid with openings to provide privacy, light and air but no views.”
