Buyers of new construction homes typically have 4 options:
- Tract Homes
- Spec Homes
- Custom Homes
- Manufactured Homes
Rating the types of new construction homes
In this article we rate the types of new construction homes based on the following considerations:
Each consideration has been rated either Good, Better, or Best.
Tract Homes ($$)
Tract or production homes are built on large tracts of land by large companies. The efficiency of scale can offer more reliability and affordability but with little or no choice of design and finishes.
- Affordability (Best): Tract homes tend to be more affordable than Spec and Custom Homes
- Location (Good): Tract home lots tend to be smaller. Tract homes are located in large developments with homes of similar age and appearance
- Quality (Good): The quality varies on the company and development but generally the finishes of Tract homes are entry level
- Flexibility (Good): Tract homes typically have a very limited set of plans and finishes to choose from
- Predictability (Best): Buyers of Tract Homes will have a good idea of what the finished product will look like (fully staged model homes, etc…) and how much they will cost with few surprises.
- Availability (Best): Tract homes typically have the shortest lead times as multiple houses are under construction at all times.
- Builder Considerations: Tract homes are built by larger, more established, sometimes nationwide companies. These companies are experienced but won’t be able to offer personal attention.
Spec Homes ($$$)
Spec homes or ‘Speculative’ homes are built on in-fill sites or small tracts by small-medium size builders. Spec homes offer limited selections to buyers but are more affordable than custom homes.
- Affordability (Better): Spec homes are typically more expensive than Tract homes but less expensive than Custom homes
- Location (Better): The lot size and location of spec homes can vary but they are not limited too large developments like Tract homes.
- Quality (Better): The quality of finishes vary depending on builder and buyer selections however Spec homes tend to haver nicer finishes and appliances and have a more unique design than Tract homes.
- Flexibility (Better): Spec Home builders typically offer a limited set of plans and finishes to choose from- the buyer input will vary based on builder.
- Predictability (Better): The predictability of construction costs and times for Spec Homes fall somewhere between Tract Homes and Custom Homes. Land development considerations at in-fill sites can add complexity, delays and surprise costs.
- Availability (Better): Builders of Spec Homes often build only one or two at a time so the availability of a Spec Home will fall somewhere between Tract Homes and Custom Homes
- Builder Considerations: Spec builders are typically not as established as larger companies but may be able to offer more personal attention. Spec builders are typically smaller/local companies.
Custom Homes ($$$$)
Custom Home builders allow their clients to choose the site, design and finishes of their new home– allowing the most flexibility of all home types discussed in this article. Custom homes are the most expensive, take the longest to build and are more prone to surprises than other types of homes discussed in this article. Semi-Custom homes fall somewhere between Custom and Spec homes when it comes to price and buyer options.
- Affordability (Good): Custom Homes are typically the most expensive type of home that builders offer.
- Location (Best): Lot sizes vary but typically custom homes are built on larger or more desirable lots than spec/tract homes.
- Quality (Best): Custom homes are typically unique and generally the finishes are of a higher quality than other types of homes discussed in this article.
- Flexibility (Best): Custom homes offer buyers the most choice when it comes to lot, design and finishes.
- Predictability (Good): Buyers of custom homes should set aside a high contingency factor to account for surprises during site development, construction, change-orders, delays and un-expected increases in costs of materials and labor.
- Availability (Good): In our area it can take up to a year to get on a builder’s construction cue and up to another year to complete the construction. Custom homes often take much longer to build than Tract or Spec homes.
- Builder Considerations: Custom builders are not as established as large tract companies but will be able to offer the most personalized and hands-on attention. Custom builders are typically smaller/local companies.
- Other considerations: Custom homes typically require a ‘pre-construction planning’ phase which the other home types discussed in this article do not. The Pre-Construction Planning phase helps buyers choose their site, plan, finishes and also develops preliminary pricing, feasibility studies, permitting, financing for a construction loan and much more. Buyers of custom homes should not expect builders to provide free estimates or pre-construction planning.
Manufactured Homes ($$)
Buyers of manufactured homes enjoy the affordability of a limited selection home but have full flexibility when it comes to the choice of their lot.
- Affordability (Better): Manufactured homes offer the cheapest price per square foot (for the house only) however land costs tend to be higher than tract/spec homes
- Location (Best): Buyers have full flexibility when it comes to choosing the location of a manufactured home.
- Quality (Good): Manufactured homes typically offer entry level framing and finishes and may depreciate faster than most other types of homes but the land, especially larger plots, may appreciate more than a tract home site.
- Flexibility (Better): Buyers of manufactured homes have a limited choice of home models and finishes (but more than buyers of Tract homes) but they can have the home placed on whichever lot they choose.
- Predictability (Better): Buyers will experience few surprises when it comes to the price and delivery of the manufactured home but they will be vulnerable to all the potential surprises when it comes to land development.
- Availability (Better): Manufactured homes are the most available of all home types however buyers will experience typical lead times when it comes to the development of the land (utilities, clearing/grading, driveway/parking, landscaping, etc…)
- Builder Considerations: Manufactured home companies are typically National and well established, however buyers should not expect much hand-holding or personal attention.
- Other considerations: Manufactured homes appraise, finance and depreciate differently than site-built homes. Land/site development costs tend to be higher than tract/spec homes. Buyer may still have to hire a general contractor to coordinate all the planning involved with clearing/grading, driveway/parking, foundation costs, landscaping, and utilities (power, water, septic/sewer, etc…)
Which type of home is best for me?
Doing the math
Buyers of some new construction homes don’t always recover their investment when it comes time to sell their home. In all cases, buyers of new construction homes should discuss the ‘comps’ or comparables and the potential selling costs of the home with a real estate agent to confirm that it will be a good investment over the long-term. Projected home costs should include a contingency factor, especially with custom homes, to account for surprise expenses during construction. Construction loans, which are often required for buyers of custom homes, are more stringent and complicated than traditional loans. A buyer’s budget may dictate many of their decisions moving forward which is why it is best to speak with a lender before approaching builders.
- Interview several builders (lists of questions can be found online)
- View their portfolio and houses in person if possible
- Speak to their clients and references
- Honest discussions about budget will save everyone time.
- Discuss different options (Spec/ Semi-Custom/ Custom) and different models to achieve different price points
- Review their historical data, if possible. Typical costs? Price per square foot? Construction times?
Honest and direct conversations with lenders and builders are the quickest way for buyers of new construction homes to narrow the field during their search for a new construction home. Tract homes are generally the most affordable, custom homes offer the most flexibility of location, lot, design and finishes and Spec, Manufactured Homes, and Semi-Custom homes are somewhere in between.
The best option for new construction homebuyers depends on buyer:
- Desire for selections of land, design, and finishes
- Desire for personalized attention or hand-holding during construction
- Other lifestyle considerations