Curve

What is a spec home?

Peter Warden
The Mortgage Reports editor

Definition of spec home

spec home is a house that was constructed by a developer speculatively: in the hope of finding a buyer — and making a profit — later. In other words, it’s a house designed to appeal to as many potential buyers within a market as possible rather than one buyer in particular. Move-in-ready home, immediate-delivery home, inventory home and featured home all mean exactly the same as spec home.

Get pre-approved for a spec home. Start here. (Aug 20th, 2019)

Custom home

So a spec home is different from a custom house. One of those involves a consumer buying land and then designing (usually with an architect) and building (usually with a construction team or contractor) a home that meets his or her own personal needs and tastes. It sometimes involves tearing down an existing building. Custom homes are also called “on-your-lot” homes.

To differentiate between custom and spec homes, it may be helpful to use a clothing metaphor. Custom homes are when you go to a traditional tailor or seamstress who measures you and then creates a unique outfit just for you. Spec homes are closer to your buying an outfit you select from the racks in a store.

Of course, off-the-peg clothes can be every bit as stylish, comfortable and prestigious as tailored ones. Nobody’s going to look down their noses at your Dolce & Gabbana, Versace or Prada outfit. Nor at your spec home, if it’s one of these two cited in a July 2018 Wall Street Journal report:

In the ritzy Bel-Air district of Los Angeles comes a tale of two megamansions: A massive spec home coming to market for $180 million sits right next door to another massive spec home already asking $188 million

Discover more: Complete guide to building a house.

Tract homes

Tract (a.k.a. “production”) homes are a type of spec home. So all tract homes are spec homes but not all spec homes are tract homes. But’s what the difference?

Typically with tract homes, a developer buys a large area (“tract”) of land and builds many — often tens or hundreds — of houses on it. These usually are built to a limited number of designs, and you usually have to pick from two, three or four of those. Still, a purchaser who buys early enough in the construction process can sometimes have a say in finishes.

If you want to extend our metaphor into a simile, tract homes are like clothing you buy from a mass-market store. But spec homes are like ready-made clothes you buy anywhere, whether that’s a chain in your local mall or the most exclusive designer outlet on Rodeo Drive. Now we know what they are, it’s time to look at some of the pros and cons of spec homes.

Advantages of a spec home

Quick and easy

Perhaps the biggest advantage of a spec home is that it’s quick and easy to buy one. Often, one’s sitting there, just waiting for you to turn the key on closing. However, it’s true you might have to hang around for a while if you buy “off-plan” (before construction’s started).

But, providing you’re buying from a sound and reputable developer, that’s still a serious shortcut compared to building your own place. Even if you’ve already found and purchased the land for your custom home, you still have to design the place from the basement to the chimney. And perhaps observe local teardown laws. And get zoning. Oh, and manage the construction process.  That’s neither quick nor easy.

In 2018, it took nearly a year to get from the start of construction to completion on owner-built homes.

According to the U.S. Census, in 2018, it took on average nearly a year (11.4 months) to get from the start of construction to completion on owner-built homes. On the plus side, that falls to 8.4 months if it’s contractor-built. But you have to add at least a month to both those for the average time it takes to begin work after authorization.

Worse, that’s just an average. True you might get lucky and beat it. But you might also end up waiting longer. However you do it, custom building is strictly for the endlessly patient.

And you’ll have to be decisive, too, and able to devote lots of time to the project. Because you’ll have to decide on every detail.

Less costly

As a rule, new homes are more costly than existing ones. But you’re likely to pay less of a premium on a spec one than a custom home. Developers have to build to a strict budget that reflects each home’s eventual market value. And, especially with tract homes, they can save on architects’ fees by repeatedly using the same plans, buy materials in bulk and do deals with subcontractors that generate savings. Some of that is passed on to homebuyers.

As importantly, successful developers have a strictly business relationship with the places they build. Consumers creating their own custom homes are often much more emotionally invested. So they often bust the budget by choosing more expensive specs than developers would.

Ready-made communities

In a tract development, all your neighbors are like you: newcomers. So you’re less likely to find existing cliques and everyone’s looking to make new friends.

Of course, some may find this a drawback. If you pride yourself on your rugged individualism and value your privacy above any social life, you may prefer to build yourself a custom house. Somewhere very remote.

Disadvantages of a spec home

So what are the downsides? Perhaps the main ones are:

  • Sometimes, developers put too much emphasis on prestigious features, appliances and finishes — and not enough on the quality of construction
  • Existing homes may be less costly than brand-new ones
  • Designs tend to be safe and fashion-led (to ensure most people will like and buy it)
  • You’re unlikely to end up with something truly unique
  • Tract homes don’t suit all personality types
  • You don’t get something designed around your tastes and needs

Should that put you off? Probably not. Most middle-class Americans like spec homes just fine. Even ones that cost less than $180 million.

Learn more at First time home buyers guide

Get pre-approved if you’re looking for a newly built home

No matter what type of home you’re looking to buy, the seller (be it the builder or current owner) will need a pre-approval letter.

Get approved and check rates simultaneously at the link below.

Verify your new rate (Aug 20th, 2019)