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Should Tear-Down Plans Be Disclosed by Home Buyers?

When a house for sale is worth more as a buildable lot than as a small, outdated residence, expect the highest bids to come from buyers intent on demolition.

Q. My siblings and I recently sold our late parents’ small home in a sought-after urban neighborhood where we all grew up. We accepted the highest of several offers (well above asking price) from buyers we assumed would renovate the house. To our dismay, it is being replaced by a huge new home that’s out of character with the block. Our former neighbors are upset with us, too. Didn’t the buyers or their agent have a legal or moral obligation to tell us of their tear-down intent? How could we have prevented this?

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A. I don’t think the buyers or their agent had any obligation, legal or ethical, to disclose their plans to you voluntarily. If anything, the burden was on you and your listing agent to ask them or otherwise try to ascertain the intentions of the various people seeking to buy the home—a difficult task at best. But even if bidders had verbally agreed to keep the house intact, the promise wouldn’t have been binding on them; they could always say they changed their mind after learning the renovation costs.

Perhaps your agent didn’t educate you on the economic reality in your local housing market: Your parents’ property was worth more as a buildable lot than as a small, outdated residence, and the highest bids were likely to come from tear-down buyers rather than remodelers. For your part, you might reasonably have been suspicious of an offer so much higher than the others. But you were apparently pleased to sell the house for a very attractive price.

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Yes, you could have blocked this outcome, but only by putting into the contract a stipulation (or a covenant or deed restriction) that the house couldn’t be torn down or the façade significantly altered for a certain number of years. But be assured, that would have scared off not only the tear-down buyers but also the renovators who would not want the potential hassles of such a restriction. And you would certainly have received a much lower price for your parents’ home.

Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

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