Spec Homes vs. Custom Homes - Which Should I Buy?

By Victoria Grace from Nucleus Construction

For someone who is finally in a position to acquire a home you can finally call your own, it can get a bit tricky deciding which path to take to get that house you’ve been dreaming about for a long time.

Of course, the easiest way to a new home is to buy an existing house, one that was previously owned by someone else. Once the money exchanges hands and all the paperwork is done, you can move in anytime and do with it whatever you want, like have some kitchen remodeling done to fit your preferences better.

However, if you want a newly-constructed house, buying someone else’s is out of the question.

As things stand, you have two primary choices: hire a team of architects and builders to build your custom house, or buy a spec home, which are move-in ready homes designed to appeal to just about everybody.

A spec home sounds good, but will it be to your liking? Or would you prefer having one custom built from the ground up? Let’s take a closer look.

What is a spec build?

Spec build, or speculative build, is a home that you build with the goal of selling or flipping it for a profit. In other words, you speculate that you will sell the home, but you build it before finding any potential buyers.

What is the difference between a spec home and a custom home?

A spec home is a home that is designed and built by builders that matches the most popular trends of today’s homes. On the other hand, a custom home is a home that is designed entirely by you. You finalize the design, appliances, electrical, plumbing, and more – then propose it to the builder, who builds it in the location of your choice.

Spec Homes: The Pros

Quick Construction

Construction on spec homes is almost always close to being done by the time the builder puts them on the market. Buyers don’t have to wait long before they can move in.

Hassle-Free Experience

Buying a spec home also means you won’t have to hire builders and designers and deal with bureaucracy to make your dream home a reality. Spec home builders will have already taken care of all that, from the architecture to the permits down to the color and finishes.

Affordable

The cost of a spec home is also typically lower than if you had a similarly-sized custom home built. Much of this has to do with the perceived greater purchasing power of spec home builders, who can opt to pass on their savings to buyers.

Appealing to Future Buyers

Considering how they are designed to have features and selections that the average home buyer will like, spec homes are easy to sell in the future and that makes them a good investment.

You can visit the home and check it out for yourself.

Unlike in a custom home, which has to be built, spec homes are already built so you can visit your new home. This way, before you purchase, you know exactly what you’re getting in return.

Spec Homes: The Cons

Limited Design

Most cons of a spec house revolve around the fact that you, the prospective buyer and owner of the home, don’t have much control over its construction and design.

As stated earlier, most spec homes are already near completion or are even complete when the builders sell them to you, so if you have a few design preferences in mind, it will be too late to squeeze them in.

If the builder included features that you don’t need or want, there really isn’t much you can do about them. You’ll be paying for them just the same.

Since your spec home is, in all likelihood, one of many built by the same builder, it will probably look similar to the others, which nips any wishes you had of uniqueness in the bud.

Location

You also won’t have a lot of say in the location of the home, since the builder will likely be already working on the home when you consider a purchase.

Builders Will Look to Sell Quickly

Most builders have several projects lined up, so they won’t just be looking to sell one house. They may be in a hurry to close your deal and move on with other projects. So, if you’re still in the process of selling your current home, you may want to get close to finalizing a deal before looking into your new spec home.

Custom Homes: The Pros

Flexible, Highly Customizable Design

The single biggest advantage a custom home has over any spec home is the amount of control you have over its design and construction.

A custom home is exactly that: everything about it, from the materials to its features, will match your preferences.

Even the placement of TV points, electrical switches, and interior lights is entirely up to you.

The custom builder you will hire for the job is bound to make your wishes for your dream house a reality.

Free to Choose the Location

Spec homes are often built in complexes or neighborhoods with other spec homes, but not custom homes. You can choose the location. So if you want to build somewhere near a good school, then nothing should stop you from building your home there. Do you own a plot of land? You could build your custom home there, too.

Custom Homes: The Cons

Time-Intensive

Construction of a new house from scratch can take some time. That means you and your family will have to wait for a while before you can move in.

If you have a clear vision of exactly what you want out of your custom home, it may take some time to communicate that vision to your builders. You can be picky, but just be sure to have patience.

Possible Delays

Delays in the construction are also a genuine possibility. Work on the project may be affected by severe weather. You might have some trouble with the budget, or some official documents pertaining to the construction might be caught up in red tape.

Relatively Expensive

The level of customization you have also means the project will likely be more expensive than a spec home.

With all the possible issues that could come up during the build, having a custom house built can be more stressful than simply paying for a nearly finished spec house.

Can you negotiate the price on a spec home?

The builder(s) will likely be hesitant to negotiate price on a spec home. Chances are that they have built several of the same types of homes, which means they likely have a going rate for it that they want to stick to.

Depending on your specific situation, it might be possible to negotiate the price. For example, maybe your builders took longer than usual to finish the project.

Perhaps you don’t have a lot of competition for the home, which means you have more freedom to adjust the price.

It could be that the housing market is great and your builders are selling a lot of homes. Then, they may be more willing to give you a discount.

But, remember that negotiating can be tricky. You won’t always be able to decrease the price. It’s important to not low-ball the builder and give them a reasonable offer to begin negotiation. Otherwise, they won’t be willing to budge at all.

Is it cheaper to buy a house or build it?

It is cheaper to buy a house than to build one, mainly because of time. If your house is nearly built or already built, you don’t have to worry about any hurdles that come up during the building process, construction delays, or finishing the project in time. Your risk dramatically decreases if you buy a house since you will avoid much of the unanticipated delays. After all, a delay means more time spent on the project, which means more money goes out of your pocket to the builders – and we want you to conduct an efficient purchasing process.

Is it a good idea to buy a spec home?

If you want to get settled in your new home quickly and don’t mind the design, structure, and layout of your home, a spec home is the best option for you. If you’re looking for a more flexible option, a custom home gives you the freedom to design every aspect of your home however you like.

Why do builders build spec homes?

The goal of builders is to profit off of building a spec home, then flip it for a profit, and repeat this process. Builders are targeting a niche market of prospective buyers who either can’t afford to wait to purchase their home or are just looking for a more immediate solution than a custom home. Many homeowners prefer to move in in just a couple of months, rather than put the time and energy into a custom home project that can last for over a year.

How much can you make on a spec house?

Investors can expect anywhere between a 5% ROI on the low end and 15%+ on the high end. If you’re just starting out investing in spec homes, you will be closer to the lower end of this spectrum.

If you build on your own land, the total cost will be slightly higher to build your spec home since you’ll have to pay for the land that it’s built on as well.

Is it worth it to build a custom home?

When considering building a custom home, consider the following questions:

How long are you planning on living in the house?

If you’re planning on living in your home for the rest of your life – at the least for several years – then a custom home could be a worthwhile investment. Think of it this way. Let’s say it takes 10 months to build your custom home from start to finish. After all of that work, if you only stay in the home for one year, you put a huge amount of work into something that you didn’t really get to enjoy for too long.

If this home is your “forever home,” then spend as much time as you’d like on your home. Make it yours!

Do you have the time and patience for this project?

One of the biggest disadvantages to custom homes is the amount of time they take to build. Beyond building, there’s extensive planning you have to do, decision making on design and style, furniture, paint, appliances, home layout...the list goes on. Then, you have to coordinate with builders, contractors, designers, and the like to conduct this project as efficiently as possible – and this can be quite the chore!

Is an ambitious project like a custom home something you’re ready to commit to? That’s up to you to decide!

When are you planning on selling your current home?

Because custom home projects are so time-intensive, it is tricky to coordinate your home sale with building your new home. If you’re worried about the timing, you can always build your custom home early. Then, when it’s finished, you can move in whenever you are ready.

What’s more common is that you experience delays in the building of your custom home and you’re ready to sell your current home before the new one is finished! Your buyer will likely be willing to accommodate you give or take a few weeks, but if your project drags on, this may dissuade prospective buyers from pulling the trigger on a purchase.

What time of year is it?

Ideally, start building your home in the fall or early spring, when the weather won’t slow you down. Then your builders can enjoy nice weather and work much more efficiently to finish your home before next winter comes around. Or they will at least get a good chunk of the project done before winter hits.

Trying to launch a new home project in the dead of winter will be a slow painstaking process. Yes, you can do all the planning, researching for professionals, and coordinating tasks with them in the winter, but ideally, start the building process when good weather comes around.

How much do builders make on a custom home?

On average, experienced builders can make between 10% and 15% of the total selling price of the custom home. Newer builders will typically see numbers under 10% before they become more adept at reducing inefficiencies and cutting costs throughout the building process.

That wraps up our guide on spec homes and custom homes. With the pros and cons outlined, along with several common questions answered, hopefully you find the information you need to decide on which home is best for you. Good luck finding your dream home!

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