If you want a custom-built home this year, don’t expect to move in anytime soon. “Right now, (building) a new house can take 12 to 18 months,” says Jeff Taylor, founder and managing director of Mphasis Digital Risk, a firm providing technology services to mortgage lenders.
However, there may be a way around those long wait times. Many builders have what are known as spec homes, which could shorten the move-in period to weeks rather than months. As prices for existing homes surge, they can also offer good value.
“Overbidding and high prices are making spec homes a great alternative for buyers if they can get one,” says Alexia Bertsatos, a real estate agent with EXP Realty who works in Arizona’s East Valley. “The price can be locked the moment the contract is signed, avoiding bidding wars and overpaying.”
If this sounds like a good option for you, keep reading to learn more about spec homes, their pros and cons and how to buy one.
What Is a Spec Home?
The term spec home stands for speculative house, but they can go by other names.
“A spec home can also be called a move-in ready home,” says Dannel Shepard, a broker associate with Re/Max Time who serves the greater Cincinnati area. “Builders build homes in speculation of selling, but they don’t have a (specific) buyer in mind.”
Nearly 40% of homebuilders build entirely on spec, according to Bob Cain, business unit leader for BuildTools & Bolt, construction project management software offered by ECI Software Solutions. “In a market like this, it makes more sense for a homebuilder to go back, look at what’s hot and make a guess,” he says.
Cain likens spec homes to new cars on a dealership lot. While you don’t get to select the features for those vehicles, they are available for immediate purchase. Likewise, there may not be much opportunity to customize a spec home, but that may be a small price to pay for someone who is looking to move in quickly.
Pros and Cons of Spec Homes
Like new construction, spec homes are built with the latest materials. “When that house is done, it’s 2022 everything,” Taylor says. “The downside is that you’re buying for that brand new premium.”
Even if spec homes cost more than existing homes on the market, they may offer good value to homebuyers who don’t want to deal with the surprises that can come with an older property. Plus, many come with builder warranties.
“For a year, you have bumper-to-bumper (coverage),” Bertsatos says. There may also be 10-year warranties on the roof and structure as well as the option to buy coverage for other items such as appliances. However, policies vary from builder to builder, so ask about guarantees in advance of making a purchase.
While some spec homes may be used as model homes in developments, buyers are typically the first people to live in the house, which can be an appealing aspect for some people. On the other hand, there may not be the opportunity to customize a completed home.
“You may get to make some changes,” Shepard says, but don’t expect to be able to dictate a new layout or bump out a wall.
Instead, some builders may stop at the drywall for their spec homes to allow buyers to choose wall colors, flooring or kitchen appliances. That’s not always the case, though.
In today’s hot housing market, losing customization may be an acceptable trade-off for those who don’t have much flexibility in their moving schedule. “From a consumer standpoint, your ability to move into a house is more predictable,” Cain says.
How to Buy a Spec Home
If you want to buy a spec home, you’ll likely work directly with a builder to iron out the details. A real estate agent can also help with the process.
“Before you reach out to a builder, call an expert to guide you,” Shepard advises. “It’s always great to have representation and someone on your side.”
As with other types of homes, there may be more buyers than houses available, but you don’t necessarily have to get into a bidding war to secure a property.
“Every builder is different,” Bertsatos says. In her market, some builders use a lottery system to award homes and lots. Others may have a whitelist of approved buyers. “You don’t have to use their lender, but you have to be pre-approved,” according to Bertsatos.
Builders using a whitelist may call a potential buyer and give them 24 hours to commit to a purchase before moving to the next person on the list. In this process, it can be especially helpful to be working with a real estate professional who can ensure everything is lined up to accept an offer on short notice.
Impact of Supply Chain Issues
Like other homes, spec houses are in hot demand today, and like new builds, supply chain issues are impacting their availability.
“The supply chain is bottlenecking the housing market,” Taylor says. He notes that while it used to take eight weeks to receive windows and doors, it can now be as much as 24 weeks before orders are filled. Building a home is taking about 30% longer and costs for materials are up 18% compared to the norm, according to Taylor’s estimates.
It isn’t just windows and doors that are delayed either. “The builders are dealing with a different supply chain issue each week,” Cain says. At various times, appliances, garage doors and even gas logs for fireplaces have been in short supply. What’s more, available lots are running out in some areas.
All that means that spec homes may be hard to come by in some markets. However, for those who can land one of these houses, a spec home may provide an avenue to enjoy a newly constructed property while bypassing certain buying headaches such as bidding wars and building delays.
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