Expert: Ray Beggs - 4/6/2006

Question
Dear Mr. Beggs:

Thanks for your answers.  So, anyway, spec homes are those
built on a 'speculative' basis - not built-to-order (do you have such terminology?) homes?

Am I also correct in understanding (from your answers) that spec homes tend to be less expensive compared with non spec homes?

Thank you,

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Followup To
Question -
1.  You develop or buy lots and build homes on them and sell them on a speculative basis - these houses are called spec homes. Am I correct?

2.  When you hear the words "single-family home subdivision business," what business you conjure up? The business of selling spec single homes?

I am a Japanese involved in housing business in Japan. Thank you.
Answer -
Hi Toshio,

Thanks for your question. I'll do my best to answer it.

1) Typically, if you buy lots and build homes on them to sell, you're called a "builder" or a "developer". Spec homes is just a term that we use to describe homes that are built quickly using a set of plans that the builder has has made up beforehand. Typically, a builder will have 3, 4 or 5 different models for buyers to choose from and then only limited changes can be made to these choices, ie. paint color, design features, doors, etc.

2) If I hear the term "single family home subdivision business" I would think that this is describing a builder or developers home site with new spec homes for sale. Some examples of home builders in America are Lyon Homes, Kaufman and Broad, S and S Homes, Lennar Homes, etc.

Good luck with your future endeavors.

Answer
Hi Toshio,

Yes, I would say that in the context that you are refering, that "spec homes" are what we call "tract" homes and are not made to order homes which we call "custom homes."

Also, spec homes do tend to be less expensive then custom homes because the builders can save money building them. They can reuse plans, order materials in bulk, hire a building crew for a better price because of the amount of work to be done, etc.

Hope this helps,

Ray