Are you wondering about the meaning of a spec house? The definition of spec housing is relatively simple.
Builders construct spec houses, or speculation houses, as pre-built homes before a buyer purchases. They design these houses with attention to market trends and community needs, often featuring high-quality finishes.
They offer convenience for homebuyers who prefer a quick move-in with new construction and the opportunity to inspect the house before buying.
While spec housing may not offer as much customization as custom-built homes, they provide advantages such as competitive pricing and predictable pricing structures. Their availability and cost to build can vary depending on location and builder profit margins.
As a Realtor, I’ve loved working with builders who put up specs. Marketing and selling new construction is much easier when a buyer does not have as much input. The construction process can move along efficiently without a buyer slowing it down.
From experience, many buyers can slow down the construction process with unnecessarily long decisions. Of course, from a buyer’s perspective, they want to make the right choices when spending significant money on a new home.
Let’s examine everything you should know about these properties.
What is a Spec House?
Builders construct spec houses on speculation, meaning buyers may not have input on how they are built compared to custom-built properties.
They create these properties with the current trends and needs of the community and market, incorporating high-quality finishes and features. These homes are built before a buyer makes a purchase, providing convenience for those who prefer a quick move-in or a more “hands-off” approach to home buying, unlike customized housing.
A spec allows buyers to inspect the property before deciding, offering a sense of certainty as they can see the rooms and space layout firsthand.
While they may not provide as much customization, spec houses have advantages such as purchasing in a competitive market and a more predictable pricing structure. They also offer a range of options and amenities to cater to different buyer preferences.
It is worth noting that they may have some limitations, such as limited design options and less flexibility in terms of location. Some specs may also have a more generic or standard appearance.
Benefits of Buying a Speculative Home
Buying speculative housing can offer several advantages for potential buyers. Here are some key benefits to consider:
- Quick Move-In: One of the significant benefits of spec building is the ability to move in quickly. The time to close on a house is much faster. Unlike custom-built homes that require months of construction, these properties are already completed or near completion, allowing buyers to relocate without long waiting periods.
- Inspection Before Purchase: Another advantage is the opportunity to inspect the property before purchasing. Buyers can thoroughly examine the residence, ensuring it meets their standards and preferences.
- Competitive Pricing: A spec is often priced competitively. Builders may offer attractive prices to sell the remaining inventory and generate profits. This can allow buyers to purchase a high-quality home at a more affordable price point.
- Predictable Costs: Unlike custom homes, where additional charges can quickly accumulate, the homes generally have more predictable costs. Buyers can clearly understand the price and the included features, reducing the potential for unexpected expenses.
- Wide Range of Options and Amenities: These properties are designed with the latest market trends and community needs. Buyers can find various options and amenities in high demand, making finding a home that suits their lifestyle and preferences easier.
- Motivated Builders: At the end of the year, builders may be more motivated to sell the remaining specs in their inventory. This can create an opportunity for buyers to negotiate better deals or take advantage of builder incentives.
These benefits make spec housing attractive for those who value convenience, want to avoid the lengthy construction process and desire a move-in ready home with desirable features.
However, it’s essential for buyers to carefully evaluate the specific housing they are considering, taking into account factors such as location, builder reputation, and the overall quality of the construction. It’s always wise to ask builders questions before committing.
The Drawbacks of a Specs
As with most things, there are also cons for spec houses, including the following:
- Less customization: Most of the construction will be completed, leaving buyers with fewer choices.
- No floor plan selection: Since the property is already built, you won’t be able to choose your floor plan.
- Can’t choose your lot: One of the significant benefits of custom-home building is being able to pick your lot. For example, you might want a one-acre lot with more privacy vs. a 1/2 acre.
- Don’t like the builder’s choices: One of the biggest cons will be not enjoying some of the options the builder has made, whether it is flooring, cabinetry, fixtures, or paint colors.
Spec House vs. Model Home: What’s The Difference?
A spec house and a model home are standard terms in the real estate industry, but they refer to different properties. As discussed, specs are properties that a builder constructs without having a specific buyer in mind.
These houses are often built to appeal to potential buyers once construction is complete. The builder takes on the financial risk of building the residence without a guaranteed buyer.
On the other hand, a model home is a property that a builder constructs to showcase their work and attract potential buyers. Builders typically fully furnish and decorate model homes to give buyers a visual representation of their future homes.
Builders invest in creating models to help buyers envision themselves living in the community and demonstrate the quality of their craftsmanship.
Sometimes, builders with ample capital will have multiple models within a subdivision to show off various floor plans and designs. Model homes in the development are filled with upgrades, allowing buyers to choose customizations they love.
The critical difference between a spec and a model lies in their purpose. Builders construct spec housing without a specific buyer while they build models as a display to entice potential buyers.
Builders often construct a spec with a generic design and may neglect personalized touches since they do not know the ultimate buyer’s preferences at construction time.
In contrast, they meticulously design and decorate model homes to showcase their capabilities and attract buyers who desire a similar style and quality in their own homes. Specs would be considered more as semi-custom homes.
From experience as a Realtor selling new homes, model homes can be highly beneficial for builders in making sales. Many national builders will construct McMansions for the upper middle class to purchase, loaded with upgrades.
Other developers will focus on tract homes with smaller square footage and cookie-cutter designs.
Factors to Consider When Choosing a Spec
When selecting a spec, there are several important factors to remember. By considering these factors, you can ensure that you make an informed decision and choose one that best suits your needs and preferences.
- Location: The location of the property is crucial. Consider proximity to schools, shopping centers, parks, and your workplace. Think about the neighborhood’s safety, amenities, and overall appeal. Many of these spec homes are constructed in suburban areas.
- Size and Layout: Evaluate the size and layout of the spec. Does it provide ample space for your family’s needs? Consider the number of bedrooms, bathrooms, and common areas. Think about functionality and whether the layout aligns with your lifestyle.
- Quality of Construction: Examine the quality of construction in the home. Check the materials, the home builder’s reputation, and any warranties or guarantees. High-quality construction ensures durability and long-term value.
- Customization Options: While they may have limited customization compared to custom-built homes, knowing the available options is essential. Consider whether the builder allows any modifications or upgrades to suit your preferences.
- Price and Financing: Set a budget for your new home purchase and consider the price range of available options. Evaluate your financing options and determine if you qualify for any special incentives or programs that can make the purchase more affordable.
- Future Resale Value: Even if you don’t plan to sell the property soon, it’s wise to consider its potential resale value. Look at the area’s market trends, the neighborhood’s desirability, and its amenities.
- Builder’s Reputation and Track Record: Research the builder’s track record in constructing their homes. Look for customer reviews, testimonials, and past projects to ensure you work with a reliable and reputable builder.
By carefully considering these factors, you can select a spec that meets your requirements, fits your budget, and provides long-term satisfaction.
The Process of Building a Speculative Houses
Several stages are involved in spec home building to ensure that the construction is carried out efficiently and meets the needs of potential buyers.
Here is a breakdown of the process:
- Land Acquisition: The first step is for the builder to identify and purchase a suitable plot for the home. They consider location, zoning regulations, and market demand during this stage.
- Design and Planning: After acquiring the land, the builder collaborates with architects and designers to create a floor plan and strategy that aligns with the preferences and trends of the targeted market. This includes selecting materials, finishes, and customizations. The design process focuses on making the home as saleable as possible.
- Obtaining Permits: Before construction can begin, the builder must secure the necessary building permits and approvals from local authorities. This process ensures compliance with building codes and regulations.
- Construction: The actual construction of the spec occurs at this stage. Skilled contractors and construction teams work on-site preparation, foundation laying, framing, electrical and plumbing installations, interior finishes, and landscaping.
- Quality Control and Inspections: Throughout the construction process, inspectors conduct regular inspections to ensure that the work meets quality standards and adheres to local codes. These inspections help identify and address any issues or defects.
- Marketing and Promotion: Once the residence is near completion, the builder initiates marketing and promotion efforts to attract potential buyers. This may involve staging the home, conducting open houses, and utilizing various advertising channels. New construction is typically marketed on the best real estate sites for buyers.
- Sale and Closing: When a buyer shows interest, negotiations occur, and the deal is finalized. The closing process involves legal documentation, financial transactions, and property transfer.
Building this housing requires effective project management, coordination of various professionals, and a strong understanding of market trends.
Builders aim to create a home that aligns with the demands and desires of potential buyers, ensuring a successful sale upon completion.
The Role of the Builder in Spec Home Construction
When it comes to construction, the role of the builder is crucial in bringing these pre-built homes to life. Builders play a significant role in every process step, from concept to completion.
1. Planning and Design: Builders are responsible for planning and designing specs that align with market trends and buyer preferences. They analyze the community’s needs and create spec homes with features and finishes that appeal to potential buyers.
2. Financial Management: Builders handle the financial aspects of the project, including securing capital, obtaining permits, and managing costs. They ensure the construction stays within budget and meets the desired quality standards.
3. Construction: Builders oversee the construction process, coordinating with architects, subcontractors, and suppliers to ensure the timely completion of the speculative home. They are responsible for ensuring that all building codes and regulations are met during construction.
4. Quality Control: Builders maintain strict quality control standards throughout construction. They conduct regular inspections to ensure that the property meets the highest standards of craftsmanship and durability.
5. Marketing and Sales: Builders also play a vital role in marketing and selling these homes. They collaborate with real estate agents to promote the properties, organize open houses, and showcase each property’s unique features and advantages.
6. Customer Service: Builders continue to provide customer service once the spec is sold and address any post-construction issues. They strive to maintain a good relationship with buyers and ensure their satisfaction with the home.
They aim to turn customers into lifelong clients with repeat business or referrals to friends and family.
Overall, builders are the driving force behind construction. Their expertise, attention to detail, and market knowledge are essential in creating homes that meet the needs and expectations of potential buyers.
Spec Design: Customization Options and Considerations
Regarding spec housing design, potential buyers may have some flexibility to customize certain aspects of their dream home. While customization options may not be as extensive as with custom-built homes, builders often offer a range of choices to cater to buyers’ preferences and market trends.
Floor Plans
The floor plan is one aspect of the home design that can sometimes be customized. Buyers may have the opportunity to make minor modifications to the layout, such as adjusting room sizes or adding extra rooms.
It’s essential to work closely with home builders to understand the available options and to ensure that any modifications align with the overall structure of the house. Spec plans are usually designs buyers find appealing.
Fixtures and Finishes
These residences often come with high-quality fixtures and finishes, but there may still be room for customization. Buyers may choose from a selection of finishes, such as flooring materials, cabinetry, countertops, and light fixtures.
These choices can help add a personal touch to the house and create a cohesive design aesthetic.
Exterior Features
Buyers may have some options for customization while the exterior of a speculative home is typically already constructed. This can include selecting the color scheme, exterior finishes, and landscaping features. These choices can contribute to curb appeal and reflect the buyer’s style.
Energy Efficiency and Smart Home Technology
Builders construct many spec homes with energy-efficient features and smart home technology. Buyers can inquire about these options and discuss any desired upgrades or additions with the builder.
Energy-efficient appliances, insulation, and smart home automation systems can enhance comfort, reduce utility costs, and provide convenient control over various aspects of the home.
Architectural Details
Architectural details can significantly impact a speculative house’s overall look and feel. Buyers may have choices regarding elements such as the style of windows, moldings, and door designs. The progress of construction determines if buyers will have choices.
These details can add character and uniqueness to the home, enhancing its appeal.
When considering customization options, it’s essential to be mindful of the builder’s policies, budget constraints, and the impact on the overall construction timeline.
Working closely with the builder and understanding the options can help ensure a satisfactory design outcome. Remember, the downside is you won’t have input on the original architecture. Your chance at changes can’t be made in some aspects of the construction.
Financing Options for Speculative House Buyers
When considering purchasing a spec home, it’s essential to explore the various financing options.
Here are some loan options to consider:
Traditional Mortgage
Many buyers prefer a conventional mortgage to finance their spec housing purchase. This involves working with a mortgage lender and providing the necessary documentation, such as proof of income and credit history.
With a traditional mortgage, buyers can spread out the cost of the home over a set number of years with regular monthly payments. Conventional mortgages are the most popular type of loan for spec homes.
Like any other housing choice, lenders want borrowers to have a good credit score and low debt before applying. Before going to a bank for a loan, work on improving your credit scores and removing debts from credit cards and other loans.
Construction Loans
In some limited circumstances, buyers may need a construction loan to finance the purchase of a spec home that is still under construction. A construction loan funds the construction phase, and once the home is complete, it can convert into a long-term loan, like a traditional mortgage.
Otherwise, you may need to refinance. Construction loans typically have higher interest rates and stricter eligibility requirements.
Builder Financing
Some builders offer their financing options for spec buyers. This can be convenient as it eliminates the need to work with a separate lender. However, it’s essential to carefully review the terms and interest rates the builder offers to ensure they are competitive with other financing options.
Bridge Loans
A bridge loan can provide temporary financing for buyers who own a home but need to sell it before purchasing a house. This type of loan bridges the gap between selling the current home and buying the new house. Bridge loans typically have higher interest rates and shorter repayment terms.
Cash Purchase
Buyers with the financial means may purchase speculative housing with cash. This eliminates the need for financing and can simplify the buying process. However, it’s essential to consider the opportunity cost of tying up a substantial amount of capital in a single asset.
It’s essential for buyers to carefully evaluate their financial situation and explore multiple financing options to determine which one best suits their needs.
Working with a knowledgeable mortgage lender or financial advisor can also help guide buyers through the process and provide valuable insights.
Market Trends for Spec Housing in Real Estate
As we delve into the market trends for these homes in the real estate industry, staying informed about the current landscape is crucial.
Understanding these trends can help buyers make well-informed decisions, and builders cater to the demands of potential homeowners.
Demand for Energy-Efficient Features
With growing concerns about environmental sustainability and energy efficiency, demand for spec houses with energy-efficient features has increased.
These features include solar panels, energy-efficient appliances, proper insulation, and smart home technology. Buyers seek homes that reduce their environmental footprint and lower utility costs over time.
Emphasis on Outdoor Living Spaces
In recent years, buyer preferences towards spec homes with well-designed outdoor living spaces have noticed a noticeable shift. Buyers seek housing with spacious patios, decks, or landscaped gardens. They view these areas as extensions of the living space, offering opportunities for relaxation, entertaining guests, and enjoying outdoor activities.
Integration of Home Offices and Flexible Spaces
The rise of remote work and flexible schedules has led to a surge in the need for home offices and versatile spaces within residences.
Spec homes now often incorporate dedicated office spaces, multi-purpose rooms, or additional flex spaces that builders can customize to meet varying needs in response to demand. This trend caters to the evolving work-life balance and the increasing desire for functional living spaces.
Focus on Health and Wellness
The COVID-19 pandemic has brought health and wellness to people’s minds, leading to a growing demand for spec homes that prioritize these aspects.
Features like home gyms, wellness rooms, and ample natural light are highly desirable. Buyers seek spaces that promote physical and mental well-being, allowing them to create a sanctuary within the comforts of their homes.
Integration of Smart Home Technology
Integrating smart home technology has become a must-have for many buyers in an increasingly connected world. Specs now incorporate smart thermostats, voice-controlled systems, remote security, and lighting automation.
These technologies enhance convenience, comfort, and energy efficiency, catering to the needs and preferences of tech-savvy homeowners.
Sustainable and Low-Maintenance Materials
Buyers are keenly interested in housing that uses sustainable and low-maintenance materials. These materials contribute to the property’s overall durability and longevity and align with eco-conscious lifestyles.
Features such as bamboo flooring, recycled building materials, and low-emissivity windows are gaining popularity among prospective buyers.
Interesting Facts
1. On average, spec houses make up approximately 35% of the total residential real estate market.
2. The median price of a spec in the United States is $465,000.
3. Approximately 63% of spec homes are sold within three months of being listed on the market.
4. Over 80% of specs use energy-efficient materials and technologies.
5. The average profit margin for a spec home builder is around 18%.
6. In urban areas, the demand for specs has increased by 42% over the past five years.
7. On average, spec houses undergo renovations every ten years to maintain their value.
8. Approximately 75% of speculative homes are purchased by first-time homebuyers.
9. Specs in coastal areas account for 28% of all spec home sales nationwide.
10. The average size of a spec in the housing market of the United States is 2,200 square feet.
Final Thoughts on Houses Built on Spec
Builders and buyers must stay current with these market trends to meet changing demands and preferences. By understanding the evolving needs of buyers, speculative house builders can create homes that reflect the current market trends and appeal to a wide range of potential homeowners.
As a buyer, it is a significant investment you’ll surely want to get right. Problems can occur when research is neglected.
About the Author: The above Real Estate information on what a spec house is was provided by Bill Gassett, a Nationally recognized leader in his field. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 37+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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