What Is a Spec Home In New Construction?

Posted by Florida Realty Marketplace on Wednesday, November 27th, 2019 at 8:19am

What Is a Spec HomeWith so many homes for sale in Winter Haven, FL, you might be wondering, who builds them all? The answer is likely a spec or custom home builder.

Put simply, a builder constructs a spec home with the intention that a buyer will eventually purchase it. The term “spec” is short for “speculative” since builders are banking on the fact that someone will buy the home they’re building. As the name (speculative) suggests, building one of these homes is a gamble and not a guaranteed profit.

 

How Common Are Spec Homes?

Generally, a healthy economy and a good market requires about 1 million new homes need to be built per year to keep up with the growth of new households and attrition as homes age.

Over the last few years, new construction homes for sale have been increasing, but it’s still lower than the 1 million number required. This means builders can decide on a plan, pick out the home’s finishes and features based on current trends, and be fairly certain the house will sell quickly. Often, the homes sell before construction is even complete.

What Determines the Price of a Spec Home?

The supply of property lots and potential buyers will drive the spec builder to set pricing for a reasonable profit. However, other factors also affect the price, and the builder must make adjustments to cover them.

For example, some challenges include:
•    Local laws that have dictate the type of materials used
•    HOA covenants can determine minimum square feet for the build
•    Environmental elements that make it difficult to get a foundation installed, such as large rock formations or water on the property

Some spec builders will find vacant lots in existing subdivisions to build on because the cost is lower, and all the basic development has been done. Roads, power, gas, and sewers are usually already in place, and the builder just has to create the homes’ foundations and connect to existing utilities.

Any of these factors can cause a spec builder to charge a premium price.

Are Tract and Spec Builders the Same?

A tract builder is similar to a spec builder but on a larger scale. Usually, a tract builder will purchase a tract of land, clear it, and install the required utilities. This tract of land is made up of lots, which will eventually be different properties.

Tract builders could be developers who create the subdivision and implement streets, sidewalks, and utilities—all work that has to be done before the builder gets started.

Most tract or production builders will have model home plans to choose from, offering options on many of the features that make a home desirable (choices in paint, flooring, and cabinets can appeal to more buyers). Sometimes, they are able to make cosmetic changes in the midst of construction, but those changes are limited to keep them on schedule.

Many of these builders can put up a new home in sixty days or less. They will have a selection of plans to choose from, so they are more limited than custom and semi-custom builders.

What Is a Semi-Custom Builder?

These are builders who have a set of house plans, are willing to make limited changes as required to meet the buyer’s wishes in floor plans and will typically build on a lot chosen by the buyer. It can be on a lot or property already owned by the buyer, or the builder can purchase the lot and roll all the cost into a construction loan if needed.

Semi-custom builders are able to control construction costs in two ways: by having the plans and knowing the adjustments that can be made, and by hiring labor crews to build several homes a year.

Custom Builders Offer Unlimited Choices for Buyers

Custom builders take the level of choices to the maximum. They typically work with architects and designers who create the plans to the buyer’s specification, create the drawings needed to build.

One of the biggest differences in this kind of builder is that the cost is controlled by the buyer. It is not the custom builder’s job to tell the buyer ‘no’.

If the buyer wants to import logs from South America, have them milled on-site, and build with them, the builder must coordinate how to get it done. If the buyer wants exotic hardwood flooring, custom cabinets, and solid gold plumbing fixtures, the builder facilitates this.

Essentially, as long as the buyer has the money to fund their choices, the builder makes it happen. This is truly where the buyer gets what they want, but it comes at a cost.

Work with A Real Estate Agent

Finding the resale home of your dreams within your budget can be a challenge. But working with a Davenport real estate agent knowledgeable in new construction can be a big help in making this an easier process. They can also select a builder that fits inside a budget, making it simpler when you know your choices. Contact Florida Realty Marketplace today to speak to a professional agent and learn more.

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