Pluses & Minuses (2 Apiece)
At least in my experience, for every long-time homeowner who’s (overly) invested in their home, psychologically-speaking, and can only see it through rose-colored glasses, there are another 3 (or 10!) hoping their home is a teardown, especially if it’s located in a hot area.
Ditto for the listing agent waiting in the wings to sell it.
Their two-part logic?
One. The Seller doesn’t have to spend money fixing or updating anything,** never mind staging consultations, showings, or any other sales-related headaches; and
Two. There won’t be any inspection issues to wrangle over . . . because there won’t be an inspection.
Inspecting the Soil, Not the House
Of course, those two pluses can be at least partially offset by these two negatives:
One. While the home’s condition may not matter, the condition of the soil underneath it might (softer soil or land near wetlands can require pilings, which increase construction costs).
As a result, any sale might be contingent on the results of a soil test.
Two. Builders and developers pay wholesale, not retail.
That’s because they need to bake in a profit for when they sell ” something owner-occupants don’t have to worry about.
Crunching the Numbers
So, is it (a teardown)?
This 3-step formula is a good start: 1) determine the current top of the immediate block; 2) overshoot that price by 25% — 33%; then 3) divide by 3 to determine the value of the land.
Assuming the current top of the block is now $800k, developers could safely put up a well-conceived and built $1M+ spec home that pushed all of modern Buyers’ buttons (open floor plan, high-end finishes, tall ceilings and lots of windows, wireless technology, etc.).
Dividing $1M by 3 = $333k.
That’s what the homeowner could roughly expect to get from builders.
Photo Finish
A thoughtful CMA (“Comparative Market Analysis”) by a good local Realtor can determine if the existing home is 
worth more than that, after budgeting for any needed fix-up or prep costs.
If it’s not ” or, it’s too close to call?
The listing agent markets to both owner-occupants and builders, and lets the market sort it out . . .
**The local municipality may require the Buyer and Seller to hold a relatively nominal amount in escrow, until the Buyer’s new home plan is reviewed and approved.
P.S.: One of the nice things about teardowns for a listing agent, post-closing, is record keeping “as in, very minimal.
While the usual statute of limitations for agent liability on a deal is six years, once the existing structure is gone, I typically only retain documentation relating to soil tests, the Purchase Agreement, and closing worksheet (now called the “ALTA”).
See also, “True or False: To be a Teardown, a Property Must Be in Poor Physical Condition“; “East Edina Arbitrage ” Housing Market Edition“; “How to Ruin a Perfectly Good Teardown (Huh?!?)”; “Buyer’s Agent: “Need a Lot/Teardown Up to $900k in East Edina’“; and “What’s Selling . . . East Edina.”
Plus these: “Is it a Teardown? How to Tell on MLS“; “Tear-Down Economics“; “Tear-Down Prototypes“; “Tear-Down Economics, Circa 2012”; and “You Know It’s a Tear-Down When . . .”
