Q: My wife and I are thinking of tearing down our house. We love the neighborhood.
... In general, builders have a guide for tearing down in some neighborhoods — the land cost is roughly one-third of the final cost of the house. So if the land costs $400,000, the builder figures he needs to sell a house for $1.2 million. Typically, the profit is about 10 to 15 percent. So, the house would cost (in this example) about $600,000. The builder also has to carry the cost of the land, and hopefully can sell the house quickly.
You can see how a builder could quickly get into trouble if he is carrying the cost of a $1 million house and it doesn’t sell quickly. All profit would evaporate.
There may be another option: Can you gut renovate the house and add onto it? You may have some cost savings there. The house will look and feel “new,” but in some communities will perhaps keep a lower real estate tax base (which could really add up over the years). You may want to check into this option.
A final option would be to purchase a manufactured house — designed and built elsewhere, then trucked in and laid upon a pre-fab constructed basement. It’s a stick-built house, just built under cover somewhere else. It may cut costs (under $100 per square foot may be doable), and save you a lot of time.
--Inman Real Estate News