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Tear-Downs Spread to Less Expensive Neighborhoods, Busier Streets

Literally one day after the Golden Valley home pictured above sold for $77,000 last month ($2k over ask), the new owner listed the to-be-built new construction on MLS (photo, below).

Asking price:  $449,900 for 5 BR/4 Baths and almost 2,900 finished square feet.

Not a bad bump, assuming the new home sells for anything close to that.

Tear-Down “Sweet Spot”

The Golden Valley home underscores a bigger trend — in the Twin Cities and nationally — that began 3-4 years ago and is likely to accelerate in 2014.

Namely, new home builders moving “down market.”

A couple years ago, the tear-down “sweet spot” locally was a home in Edina or near the City Lakes that was functionally obsolete and/or in very rough condition, that could be bought for around $250k.

Price tag of the new home:  $800k to $1 million.

Fast Forward 3-4 Years

Today, that same lot — if you can find it — might fetch $350k – $400k.

Builder margins being what they are, that requires putting up (and selling) a $1.2 million new home — beyond the reach of all but a small slice of the market (at least in the Twin Cities; $1.2 million buys a parking space in Manhattan or San Francisco).

That more-daunting math has Twin Cities builders looking for new neighborhoods and (much) cheaper land, as well as  discounted lots (like on busy streets) in more expensive areas.  See also, “Twin Cities New Construction Overheating?“; and “Downsizing Developers:  Stayin’ Alive.”

The result?

Builders are targeting tear-downs in more modest — but still desirable — neighborhoods in St. Louis Park, Golden Valley, and Longfellow (Minneapolis) that can be bought for $150k and replaced with new construction fetching $450k – $600k.

Or . . . $77k (before) and $450k (after).  

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About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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