I worked with a client who ended up doing a teardown of the house that they had lived in for 15 years because the extent of the renovation would have cost almost as much as a new house, but the new construction would have been worth more than the old house renovated. (They are post war splits and ranches and the splits in particular do not take additions well: they look awkward, and are still a small house with a big addition.)

The turning point for them was that bids were coming in for hundreds of thousands, and the builders were saying that it would be more cost effective to demolish and start over.

HOWEVER, the real estate market has dropped, the homeowners got divorced and in their particular part of the neighborhood no one else has done a teardown yet. The wife is trying to sell and although there is a lot of interest, no one wants to have the biggest/nicest house in the immediate neighborhood.

You have to decide whether you will be overimproving for the neighborhood as well. At the time, there was a lot of discussion that they were doing this but there were other people planning to do this, and they thought well, in 15 years if we sell, the neighborhood will have caught up. Well, two years later they were divorced and the economy has prevented anyone else from going this route.

In an interesting turn of events the wife bought the house next door from an estate, its the twin of what she tore down. The house was considered "worthless", it is the land that had the value. However, she is not tearing this one down, she is doing a gut reno of the same footprint.

The other thing you should consider is if you should sell the property and invest in a house that is closer to what you want.

What would be the market value of your home under the two scenarios: remodel or teardown and build new? Ask a realtor.

We bought a 2000 sq ft 1950's ranch on an acre. There were other similar properties in the neighborhood, plus some old mansions and a few teardowns/big builds (6000-12,000 sq ft). Our land assessed at twice the house.

I'm so glad we tore down and built new. In the eight years we've lived there other lots with small homes have had teardowns/builds. Our house is 2900 sq ft on one floor, but the full-height attic can be another 3-4000 sq ft for a larger family someday. We have the smallest NEW house in the neighborhood. Our value is brought up by the surrounding homes and the fact the house is 100% new, not an old house with some newer parts.

I'd only consider extnsive renovations if the existing home is historic or if you have to have more space and can't find another, larger existing home to buy. It's not just cost, but living through renovations. And it certainly is about what the end product will be worth.