There are 3 distinct types of home builders and the type you choose to work with will determine the cost of your home. Having a full understanding of what type of builder you are working with will also help you have the best home building experience.
The three different types of residential builders are tract, spec, and custom. Each type of home builder has its own benefits and drawbacks to the home building process. One thing to note is that builders are not always just one type. For example, custom builders may build spec homes to use as model homes.
This type of builder is also known as a “production builder”, and is typically a national or statewide, well established company. In general, tract builders focus on a few neighborhoods within a city, and build the majority of the homes in those neighborhoods. They also typically have a set number of floor plans and home features to choose from, which does not leave a ton of room for flexibility. Tract builders build homes whether they have confirmed buyers or not, so they usually have a number of completed homes that are vacant, up for sale, and move-in ready.
This type of builder often has a fully staged model home in each neighborhood they build in where sales associates show the home. Some tract builders have partnerships with local real estate agents to list their homes, however, not all of their inventory is listed through those agents.
Tract builders offer many affordable options, however, the price can vary based on neighborhood as well as other factors. Most tract builders have different tiers of builds with different sets of upgrades and home furnishings.
Some of the benefits of tract builders include:
Some of the drawbacks of tract builders include:
Spec refers to “speculative” because spec builders purchase lots and begin the building process even if they don’t have a buyer. They “speculate” that they can sell the finished home when it is finished. For this reason, spec builders are similar to tract builders, they both begin building a home even without a buyer. However, spec builders do not own large areas of land or lots in a specific neighborhood that they always build on. They are also typically local, small business owners.
Spec builders typically buy lots individually, one at a time, and the floor plan and features vary with each home. If a spec builder has already begun the building process, a lot of features are already set in stone and can’t be switched out or changed. However, they often build a home from scratch which allows more flexibility and options.
Some spec builders have model homes to view and some do not. Unlike tract builders, most spec builders work directly with local real estate agents to work on their sales team. Spec builders are also more likely to be flexible on pricing if the home is an inventory home that has been on the market for an extended period of time.
Spec builders typically require terms similar to pre-owned or tract homes on things such as upfront costs and deposits.
Spec builders offer various pricing options, usually an entire range of more affordable starter homes to higher end homes. Many custom builders also build spec homes in addition to custom builders.
Some benefits of spec builders include:
Some of the drawbacks of spec builders include:
If you’re looking for a completely unique home that is truly yours, a custom builder is the choice for you. You can customize literally anything and everything. The only limits are budget and possible neighborhood regulations. However, these things will be discussed up front.
Unlike tract and spec builders, custom home builders don’t start the building process until there is a buyer, so they almost never have vacant, completed homes to view unless a prospective buyer fell through. Sometimes they do build spec homes, however it really varies builder to builder.
Custom builders are the least flexible on pricing, and the upfront cost to start building can be higher than tract or spec builders. Some custom builders require that the buyer purchases their own lot first, however it depends on the builder. Custom builders typically do not have model homes or listing agents, but they usually do have offices to meet with customers. Their homes are typically not listed on an MLS (multiple listing service), they are custom after all!
You can think of custom home builders as made-to-order, you get the ability to choose every detail, however, there are not many models to compare as a reference, since each home is different.
Some benefits of custom builders include:
Some of the drawbacks of custom builders include:
Understanding the different types of builders will help you better understand the options you have and how each one operates. It isn’t that one type of builder is better than the other, but each one makes a better fit for different situations.
No matter where you are in the building process, The Ultimate Guide to Home Building free ebook will be beneficial to you! Download it here: