Do we sell our precious home to be scraped for more money?

Question

Okay, so here's our dilemma. My husband and I bought a beautiful 2-bedroom, 1905 brick home in Englewood about 2.5 years ago. Gorgeous original wood and oozing charm, on a large lot as well. We fell in love with it and at the time it was just a little bit pricey for us but the owners loved us and thought we'd love their home too so they sold it to us for less than their asking price. Two weeks later, the Denver and surrounding area housing market skyrocketed and we were thanking our lucky stars. We love this home and fantasized that we would NEVER let it go. 1 year after moving in we found out that we were unexpectedly going to have a little girl and life shifted. We made the second bedroom into a nursery and we've had thoughts about expanding the house if we decide to have any more kids. It's simply too small if we have more kids.

We recently had an offer from a builder to buy our property for more than it's worth. They want to scrape it and build a duplex...very popular notion in Denver and its surrounding neighborhoods. Depending on how much they are willing to offer, do we sell this home that means so much to us? Where our first child was born? Our first home together, with a sweet story? And now the housing market is so crazy, if we want to move to something decent with enough room, we'd be paying close to twice what we bought our home for? We're so torn. How do we make this decision? Anyone out there with a similar experience that could share some insight?

We'll be calling them today to find out what the offer is, but...we're procrastinating because we love the home so much :(

Robert Wilson · Answer

Two options... refinance and pull out the cash due to the explosive land value to finance your addition.

Other option... sell... move into a new home and potentially not have a mortgage.

Not having a mortgage... and going debt free could drastically change your family's life for the better, or having cash and successfully investing in other real estate... again could drastically change your life for the better.

Good problems to have.

Jean Bolger · Answer

It's a really awkward time to be looking for a new house in Denver right now. How tight the market actually is depends a lot on the price point, but the inventory is just low all around. The "premium" that you get may or may not be able to actually improve your situation in terms of size/quality of house. It's all relative.

Definitely find out what they would offer, but also be sure to get at least a couple of opinions on what the actual market value is from some real estate brokers. I'll run some quick comps for you if you want, just PM me the address.

There's a lot of factors at play in a decision like this, and you need all the info you can get. For instance: would expanding the house in the future be a more cost effective and emotionally satisfying option? Is it practical/possible considering your site? Are there other area of town that are as attractive to you?

Yes, your home is a very important piece of your financial picture. However some people are more comfortable with the idea of dealing with it as a financial chess piece; for others, it's the emotional and psychological stability issues that are more important. Either approach can be the right one.

Bill S. · Answer

@Bethany Lewis just because they give you a large number doesn't mean it's the best offer. Builders/buyers approaching sellers is done to save them money. I know because I do this all the time. I don't care if they say they are paying a premium. 9 times out of 10 if you offer the home for sale on the open market you will get a higher price and better terms if you ask for them.

I would say, sell the house as you can't afford to live in the neighborhood any more. If you could afford it you would blow out the back and pop the top and you would have your space and your house. Since you can't afford that sell and move where you can afford. Tough decision but that's my take.

Travis Sperr · Answer

This is a question only you can answer, no one on this forum has the emotional attachment to that house. With that said... it is a house, it likely doesn't fit your long term needs so you will sell it eventually whether to a builder or other owner.

You can do a few things to make the deal work further in your favor - here are some things i have offered to sellers when I am going to build on their lot that you can use in reverse.

You can ask for an $X today and they close quickly, allow you to lease back for x months until you find another house. Of you can ask for more money - to close the purchase when they have permits to build about 4-6 months (or longer) for a duplex lot.

Ask that the EM be sizable and that it is released to you after they complete some diligence like soils and a initial concept meeting with the city.

Negotiate - whatever they offer - they are willing to pay more. Make sure you are in fact getting a great price, have a trusted agent run comps for you.

Side note - I will be selling my personal residence soon that is my 1st child's 1st home - and he doesn't know the difference.

Bill Devola · Answer

Sounds like an emotional question more than anything.  To bring it back to mathematics, you have this dilemma whether the market is up or down.  If its down,  you're having to sell at a loss and hate to do it.  But the other side of the coin is you can pick up bigger/better house so much cheaper than you could have X years ago.  If its up, you could sell at a great profit, but have to pay so much more to get a bigger/better house.

The only 2 small things I could say that help from a financial perspective: if you think you're in a bubble, sell and rent a new place and wait for prices to correct.  Truth be told, this is much easier to do in hindsight than it is in "reality".

Secondly, if your question really is "should we add an addition on to our existing home", the answer (from a purely financial standpoint) is almost always 'NO!'.  Almost always.  Emotionally, its a different story.  And reading your post, it sounds like its all about emotion at this point.

Joel Owens · Answer

I used to assemble land for commercial so I familiar with developers.

1. WHO is this developer and what are their credentials? You want to see their capability before even thinking of selling to them.

2. They might not even be putting a duplex but  a quad on the property. They might be just telling you that to offer you a lower price.

3. You need a comparison analysis with what a regular sale could bring in the open market versus this developers price. Is it higher,lower, the same? Which avenue would be quicker to closing? Which nets more?

4. What properties are available that meet the needs, location, size of your growing family? Is there anything out there or nothing is available in your range? It's not about what the developer wants to offer but what you need to make the sale worthwhile and reach your goals.

5. Is your house the smallest on the street? If you were already close to the top size and you (popped the top) to be the biggest on the street you may not ever see the dollar for dollar investment back that you made.

6. A rent back to the former owner situation a developer if they agreed would want a definite date that ends and could see a hold over situation. The developer has all their funds tied up into a deal they can't convert to their use. That is a last resort for a developer.

Josh Caldwell · Answer

You real trade off is the house you have vs the house you could buy with the money from the builder.  Do you like the houses that you can buy at that price.  How about this, look in that future price range and get your next dream home under contract with a slightly longer closing time, then close with the builder and step into a house that you have chose to be your next dream home.

Gerald Demers · Answer

I totally understand people loving their homes but I cringe when I see it stopping them from doing what is in their best interest.  I am not saying you are doing that here; only you can.

I see it more with senior citizens.  Growing up north, my grandparent's house killed them.  They bought it new 54 years ago and by God, they are going to die there.  Yup, it had stairs and lots of snow to shovel in the winter.  They had all the cash they needed; they could have given the house away and never missed the cash.  But they stayed.

Right down the road was a great senior's complex with French and English and they wouldn't leave their precious house.

If the love of your house is stopping you from doing what is in your best interest, you have to rethink it.

One idea to keep both is to take a piece of it and make it into something for you next house.  For example, that door frame that has all the kids heights marked as they grew, pull it down and now it is the door frame of the new house.  Kitchen cabinets can be storage in the new garage.  Especially in your case.  If they are going to scrape it away, you can take what you want.

Gerald

Matt M. · Answer

What's going to happen when that 2nd kid comes around??? You'll need more space.

I'm with @Travis Sperr . I'd rent back for FREE until you find a replacement.

"We'll be calling them today to find out what the offer is, but...we're procrastinating because we love the home so much :("

I thought you knew the offer? What price point would you be looking at as some areas are still really tight?

David Faulkner · Answer

A few options to consider as I see them. The first 2 are different versions of "take the money and run", while the second 2 are different versions of "love it forever":

1)Sell to the developer at a premium in a hot market. One good thing is your gain (up to $500k) will be sheltered because you've lived there as your primary residence for over 2 years. The bad thing is transaction costs are still high to sell real estate and should be factored in. Plus, you will have to buy right back into the hot market that you sold into, unless you want to rent for a bit to see if the market cools and/or you can locate a great deal, which may not be that bad of an idea.

2)You could propose a joint venture with the developer whereby you supply the property, he supplies the labor and materials, and you split the profits on the development. This is higher risk but higher reward than option 1. You would still need to likely rent a place while construction occurs. Make sure to seek good legal council to produce/review any agreement.

3)You stay in the house. You could expand it as you mentioned either sooner or later, and if a developer sees potential then there is likely profit to be made in addition to practicality by expanding the footprint if done intelligently and cost effectively.

4)You keep the house as a rental and purchase your next larger home. You could save or cash out refinance for down payment, so long as the property would still cash flow as a rental. If the property is zoned R2, which it may be if a developer wants to build a duplex, then you could add a second rental unit sooner or later, and you may be able to do it as an additional unit in the large yard and preserve the original structure. Personally, this is my favorite option as I have done it several times and it has worked out great. The time to do this is when you find a great deal on your next property. That may not happen until the market softens, but that is ok because you would buy low without selling low first and if it doesn't soften you already own a property that benefits. If after renting for <3 years you decide you want or need to sell, you could still do it under the primary residence capital gains shelter.

The decision is yours, but these are some options to consider.

Do we sell our precious home to be scraped for more money?

Most Popular Reply