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A spec home is designed and constructed by a builder without a specific buyer in mind.
A custom home is designed specifically for the homeowner according to their preferences.
Spec homes are cheaper and quicker to build but offer few customization options.
Custom homes cost more and take longer to build but result in the exact home you want.
When you’re in the market for a brand-new home, you may come across the terms “spec home” and “custom home.” But what’s the difference between the two, and which type of home will best suit your needs? This guide explores the differences between a spec home vs. custom home so you can make the best decision for your new abode.
Spec (or “speculative”) homes are built to builder specifications, either to use as model homes or to meet perceived market demand. These homes have several available floorplans, but you can’t deviate from their predetermined designs. Custom homes are purpose-built for you. You can design the floor plan and choose the styles and finishes—the end result is your dream home.
| Type of Difference | Spec Home | Custom Home |
|---|---|---|
| Plan design | Builder | Customer |
| Timeline | Shorter | Longer |
| Financing | Traditional mortgage | Construction loan |
| Cost | Lower | Higher |
One of the main differences between spec homes and custom homes is who designs the floor plans. Custom builders near you design the floor plans of spec homes without a specific buyer in mind. They research the market to determine which features will appeal to the most buyers and create their plans based on that research. Buyers will have very few opportunities to customize the home; at most, they can choose between a few different layouts or opt for higher-end finishes.
Custom homes are designed for a specific customer. When choosing a custom home, you’ll work with the builder to create the floor plan based on your needs. Opting for a custom home means you will have a one-of-a-kind home that’s exactly what you want, rather than settling for a home that meets most, but not all, of your needs.
Another main difference between spec and custom homes is how long they take to build. Spec homes are often pre-built, so you can move right in without waiting on construction. If you opt for a spec home that hasn’t been built yet, the timeline is still relatively fast because the builder specializes in creating these exact homes, letting them complete construction quickly.
Custom homes take time to build. First, you’ll need to work with a builder, architect, and interior designer to bring your vision to life, and then you’ll have to wait on construction. A custom home can be an excellent option if you can wait several months to years for your home to be move-in ready. However, a spec home is the better choice if you're in a time crunch.
No matter which type of home you go with, you’ll need to determine how to pay for it. Unless you have a large amount of cash lying around, you’ll need to apply for a loan. However, the type of loan you get will depend on the kind of home you’re buying.
Spec homes are owned and sold by the builder. When you buy a spec home, you’ll typically get a regular mortgage to cover the purchase price minus your down payment. Upon closing, the bank will transfer the approved loan amount to the builder, and you’ll pay off the loan in monthly installments for the loan term (typically 15 or 30 years).
Financing for custom homes is a little more complex. You’ll need a construction loan, which is a short-term loan that finances the building phase. Once the house is built, you’ll need to convert the construction loan into a regular mortgage that you’ll pay off in monthly installments. You can either apply for a construction-to-permanent loan, which automatically converts the construction loan to a regular mortgage once the house is finished, or apply for a mortgage toward the end of the construction loan term.
The cost of building a home ranges from $139,000 to $526,000, with an average price tag of $320,000. In most cases, building a spec home is more affordable than building a custom home. Pre-designed floor plans for spec homes typically cost between $500 and $5,000, while custom blueprints cost $5,000 to $20,000. Spec home builders will typically include the cost of the floor plan in the total cost of the home.
A spec home is the cheaper option if you’re on a fixed budget. However, you won’t be able to customize your home to your liking, so there’s a chance you’ll end up with features you don’t need or want. And if you choose upgrades offered by the builder, the cost of the home can climb quickly. Although custom homes are more expensive and take longer to build, you’ll end up with the exact home you want and won’t find yourself cursing the bathroom or closet design after a few years of ownership.
Spec homes offer a lot of benefits, but there are several disadvantages to keep in mind:
Predetermined design with little room for customization
Limited options for amenities
Spec home upgrades can be expensive
When you make an offer on a spec home, you can offer less than the asking price. However, builders are less likely to negotiate than homeowners selling their homes since they have to recoup their costs in the sale. And if you’re in a seller’s market, you’ll probably be outbid by another buyer. Ultimately, the decision of how much to offer is up to you—but if you really want to own the house, it might be better to offer at least the asking price, if not more.
You may have limited customization options when buying a spec home—but only if the house is in the early stages of construction. Bear in mind that customizations will add to the overall cost of the house and could push it above what you’re comfortable spending.
