Should You Buy A Spec House?

Fans of The Sopranos may recognize the term spec house and have continued to wonder for all these years just what exactly this kind of property is. Carmela constantly talked about hers throughout the sixth season, and the use of her father's woodworking towns as a contractor came into sharp focus as the pair tried to navigate the divide between luxury timber framing and the state regulator's concept of acceptable building practices and code compliance (via The Sopranos). Eventually, Tony worked this problem out in just the way you might expect him to, and the talk of the spec house soon fell by the wayside as this plot point played itself out in the storyline.

Carmela's spec house is unlike those in the real world, though (via Rocket Mortgage). Spec house developers really do exist, and the real estate that they construct and put on the market is often many steps above a typical buyer's understanding of what luxury in a property can be. These constructions are the things of dreams, and they can be fundamentally life-changing additions to your future as someone considering purchasing one. But there are some definite pitfalls when it comes to buying one, chief among them being the price tag that is typically far beyond what you might expect of a more standard property listed on the market. Still, purchasing a spec house might be an excellent opportunity for you and your family.

A spec house is a unique kind of real estate investment

Spec houses broadly fall within an interesting real estate marketplace segment as they are properties built on speculation. This means that the builder isn't constructing the home with any particular buyer in mind. Instead, they are crafting an asset that they will later try to sell for a profit. As a result, spec house developers make as much as 10% net profit on these investments, according to Construction Programs & Results. However, the speculative nature of this marketplace means that some properties will sit idle on the market for months or even years after they've been completed.

Spec houses are built as high-quality properties that will command a significant price tag on the open market. Some are sold before they are completed, either with the promise to finish the property before the buyer moves in or as is, allowing the owner to customize many of the final considerations. Because of this unique aspect, spec houses can be a fun segment of the real estate marketplace to browse through for buyers considering their own home needs for the future.

It's important to remember that no matter how you approach the marketplace when looking for a new home, the spec house is a pure investment for the seller. This can change how they interact with you over what you might expect in a traditional real estate transaction.

These homes are often the height of luxury

Spec houses are often immensely luxurious operations. To gain the best possible value on the market, a spec house builder will look to include huge upgrades across many or even all of the interior dimensions of the property. Mansion Global notes that these types of constructions are growing in popularity in local markets like Beverly Hills and other highly prized real estate areas. It's not uncommon for a spec home to sell for tens of millions of dollars. With this kind of price tag, it's easy to see why they are designed with luxurious features positioned throughout the property.

For a homebuyer seeking an incredible property that will give them lavish amenities and upgraded touches at all corners of the investment, a spec home might be the perfect buying opportunity. However, not all homebuyers will be searching for this immense volume of luxury upgrades. Purchasing a spec home will give you great amenities throughout, but you'll be paying for things you might not need. Instead, buying a more typical luxury property or searching for a spec home that isn't completed will give you a critical discount while providing the facilities you want and need in a house without the added fluff that won't serve your purposes.

Spec houses will cost you, though

Of course, a spec house will cost you an arm and a leg. If you are purchasing a fully finished property, then you can expect this to include a significantly higher price tag than other houses in the area. Still, spec homes tend to be built with considerable amounts of land surrounding the home footprint. According to NAHB Eye on Housing, this can be a major benefit for a buyer with the standard lot size diminishing over the long term.

Spec homes need this additional space in order to facilitate a more comprehensive ambiance than the typical home construction endeavor. The developer curates every home-building process aspect, including the property's surrounding area, and might go to great lengths to incorporate crucial landscaping techniques beyond the property's structure. This means that when standing in your kitchen or bedroom, the vista beyond your windows comes into play and forms a part of the home's overall experience.

All of this comes together to enhance the construction's overall value, but these sorts of features are included specifically to boost the bottom line for the developer. But buying a spec house is an incredibly expensive operation, so you shouldn't enter into this segment of the property market without understanding that you'll be paying a premium if you choose to purchase this type of superior property.

Spec houses and model homes are not the same thing

One thing that you should keep clear when considering a spec house is that these properties are not the same thing as model homes. A builder engaged in the construction of a neighborhood will build one or more properties at the front of the development and then furnish these units in an attempt to stage them, showcasing the design features of the forthcoming district for prospective buyers (via Bankrate). These early models will form a blueprint for the different kinds of properties that can be built in the community to come. There may be a single-model home design or a few different customization options.

Once these models are constructed, the developer will start breaking ground on the other homes that will form the neighborhood. Each of these homes will be based on the same blueprints for the initial models, and the entire quarter of properties may be referred to as model homes, too.

Spec homes are built as a completely custom endeavor, whereas a model home will utilize a time-honored layout and more typical amenities and features. Spec homes are like artwork in that each one is unique in architecture and interior layout. On the other hand, model homes are designed for maximum impact when selling off properties to new home buyers. Finally, model homes do not take chances or risks because developers are looking to move these constructions as quickly as possible.

A savvy buyer might be able to snag a bargain

A spec home may not be the right type of investment for you and your family. However, this does not mean you should avoid it at all costs. On the contrary, purchasing one gives you a unique property that is unlike any other in your community or perhaps even the world — it's likely this feature that makes them attractive to celebrity buyers (via Fancy Pants Homes).

Sellers may be able to move these constructions quickly, or they might sit on a completed design for a long time while searching for a buyer willing to invest in their vision. As with any other real estate commodity, the longer a property sits on the market, the more willing a seller will be to consider a price cut. Therefore, browsing through spec homes that have been listed for a considerably longer time might bring you a great bargain on a new property that incorporates all of these immense luxury upgrades.

Alternatively, you might consider purchasing a spec home before it has been completed. Buying it mid-build will reduce its cost because it won't be move-in ready when you take possession. This means that some of the building costs will fall on you, but some luxury upgrades have not yet been completed. With a partially built spec home, you can finish the customizations yourself and develop the property into something uniquely suited to you and your family.