From the Ground Up

The 3 Different Types of Home Builders

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 3 Different Types

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.

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Tract Builders

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:

  • Pricing: Tract builders produce so many homes that they are able to get their costs down more than other types of builders. Depending on how tight your budget is, tract builders may be a good option for cost concerns.
  • Move in Ready: Tract builders are the builder that most likely has various completed homes ready for sale and move in.
  • Staged Homes: These can be extremely helpful to visualize exactly what your new home will look like, instead of just a floor plan.
  • Reputation: Since tract builders are typically national companies, you have the peace of mind knowing they are well established and will be able to fulfill any warranty obligations.

Some of the drawbacks of tract builders include:

  • Lack of Customization: Any customization options are very limited with tract builders. While the ability to move in quickly is a plus, it means there are limited options to change things, if anything can be changed. You’ll also have less floor plan options and features.
  • Smaller Lots: Tract builders typically build in suburban areas rather than in the rural country, so lot sizes are less likely to be oversized.
  • More Affordable: Although this is also a pro because it saves you money, the quality of the materials used to build the home may be lower than custom home builders. However, these differences are typically in the extras or “cosmetic” features of a home rather than the essentials.
  • Limited Loan and Title Options: Tract builders sometimes have their own in-house lender to get any closing cost concessions. However, their lender may not be the best option for you.

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Spec Builders

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:

  • More Options: Spec builders offer homes in a range of price points, and typically have more options to choose from than tract builders.
  • Locals: If you enjoy supporting small businesses and being involved in your community, spec owners are typically small business owners.
  • Variation: Spec builders generally don’t build two of the same home.

Some of the drawbacks of spec builders include:

  • Less Customization: If the home has already been partially built, there isn’t a lot of room for customization, however if you start from the ground up with a spec builder you will have more options for customization than if you chose a tract builder.
  • Not as well established: While supporting small businesses is a great thing to do, sometimes they move areas and may not be in the same area in 5 years if there are any issues with your build.

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Custom Builders

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:

  • 100% Customizable: If you can dream it, they can build it. As long as your budget has the room for it, you can customize every part of your home. 
  • More Lot Options: You aren’t limited to specific lots that the builder has already purchased. If you happen to have land and it has enough space to be built on, a custom builder can build on that lot.
  • Personalized Treatment: Building custom homes is extremely detailed, and builders typically only do a few per year, so you will have most if not all of their attention.

Some of the drawbacks of custom builders include:

  • Price: This can be a double edged sword. Depending on how much you want customized and what your choices are, the price could be very high. However, that is not to say that all custom homes will be outrageously priced. It really just depends on your vision and budget. 
  • Longer Wait to Move In: Custom builders typically don’t start building until a contract is signed, so it could be between 6-12 months until closing on a home.
  • Fewer Examples: Since you have the ability to customize everything, it is a little harder to visualize than a tract home, since you can easily walk into a model tract home and see it in person. 

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Final Thoughts

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:

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