Custom Home vs. Spec Home: Which is Right for You?

You’re in the market for a new home but can’t decide between building custom or purchasing a spec home. It’s important to understand the difference between the two and how your budget, life stage, and personality will influence your choice.

What Is A Custom Home?

In simple terms, a custom home is a one-of-a-kind residence designed and built for an individual client. The goal of a custom house to to bring your ideas to life by working with a builder every step of the way. Not only is the builder working with you on the floor plan, but you also have a say in the interior design, such as paint colors and countertops.

What Is A Spec Home?

A spec home, on the other hand, is built from a plan that the builder determines. The builder may have a certain type of home buyer in mind, such as professional couples with children or empty nesters, but the spec home can also be built with features that appeal to a wide audience. In most situations, buyers don’t have as much say in floor plan and interior design. The trade-off being that you can move in quicker with a spec home.

Your personal circumstances and goals affect which type of home is right for you. Are you relocating because of a job offer and need to move into a new home within a few months? A spec home is your best bet. Do you need more bedrooms and a bigger yard for your growing family? The urgency of moving before the start of a new school year might also push you toward a spec home. Are you retirees or empty nesters? It might be time to invest in the custom home you’ve always dreamed about.

A Matter of Involvement

Frankel Building Group in Houston builds custom and spec homes. Scott Frankel defines a spec home as “one that is financed and owned by a home builder before it’s bought by the consumer.”

In a custom build, the consumer is involved from preliminary plans and preconstruction through completion. Site visits are essential; for example, during the design phase Estes Builders in Sequim, Wash., brings clients and architects to the property in order to position the home so that it optimizes sunlight and views.

San Antonio, Texas, architect Craig McMahon compares custom to “making your own personal Apple MacBook. It’s a one-of-a-kind project where every single decision will be unique to the home.”

“The [custom] client is that person who wants to be involved, wants to have input, and is creative in their own lifestyle,” says Bob Kraus of Kraus Design Build, Bloomfield Hills, Mich. The spec buyer, on the other hand, “just wants to solve a problem.” Needless to say, it helps to be realistic about your own tolerance for stress before you jump into a custom build. Kraus says his clients truly enjoy the process, particularly in the design phase, but there will be a lot of decisions to make, not to mention phone calls, emails, and meetings.

Pros & Cons of Building a Spec Home

Couples need to have the custom-versus-spec conversation privately before they start looking at houses or interviewing builders and architects because it’s about their dynamic, Frankel says. “It’s not about what will be the most fun, but what is most practical for their marriage.”

If work and children are your priorities, a spec or semi-custom home would be a better choice. Frankel cautions, however, “When you don’t know what you’re buying and there are a lot of real estate agents involved who don’t all work with each other, [doing business with that] builder could become a bad thing.”

Spec homes are completed or nearly completed before they’re sold. The builder has already chosen the floor plan, appliances, and features, so a buyer has limited choices in regards to things like paint colors and flooring.

Buyers who don’t have the time or inclination to commitment to a custom build or are relocating for a new job and need to enroll their children in school by September are a good fit for spec homes, Kraus says. Just keep in mind that some spec builders may have a “take it or leave it” policy; that is, you can choose your flooring and perhaps the appliances, but the floor plan is the floor plan.

Even if they haven’t broken ground on the new home for sale, builders may refuse to give buyers any leeway in the plan, the elevation, and most of the finishes. However, with spec homes (unlike custom homes) you may have some room to negotiate the sale price depending on the builder’s projected costs and bottom line.

Pros of Building a Custom Home

Custom builders and their clients develop a close relationship during the months it takes to finish a project, especially if the builder helps the client find the right lot and design the home. In particular, the design and selection process “teaches [you] a lot about how a house is made,” Frankel says. “You really get a sense of comfort about how you’re spending their money.”

If you’re going to live in the home for a long time and want a better quality of life, build custom. If you’re going to be living in the neighborhood for a short period of time, a spec house might make sense “because you can flip it and try to get most of your money back,” Cataldo says. “Just be careful that you don’t overbuild, because it might take years to catch up to the market.”

To give you an idea of what a custom home might cost, Frankel advises asking the builder what his/her clients are generally spending in change orders. The next step is to develop a comprehensive budget.

Once the price is agreed on but before signing the contract, think about expenditures you’re likely to make the first year you live in the home, such as buying furniture or adding a wine refrigerator or wine room. Those kinds of decisions need to be made at the start of the project, Frankel says, and it’s vital for the client and builder to communicate with each other and remain disciplined about sticking to the plan. (It’s all too easy to convince yourself that you can’t live without a lower-level wet bar or a top-of-the-line outdoor kitchen.)

Cost Considerations

Cataldo says there are three variables involved in the planning process for a new custom home: size, budget, and specifications. Lot conditions and site preparation are the only fixed items. “Only two of these conditions can be changed from variable to fixed,” he says. “The third must remain a variable and will be determined by the first two.”

For example, if the client wants to determine the price and size of the house, then the specifications and architectural style will have to be variable in order to meet the required price and size.

Cataldo urges buyers to look closely at the cost/value equation. For example, a $450,000 spec with features such as wood floors, better appliances and windows, more insulation, and a suite of home automation features might be a better value than a $400,000 home without those features.

Some spec builders will allow you to make changes to a home in the early stages of construction, but don’t get carried away, he warns: “It could potentially cost more to do spec than custom.”

Kraus says the true difference between a custom home and spec home is that the custom home doesn’t exist when the clients have their first meeting with the builder. It must be created. “There are no counteroffers with a custom home,” he says. “It costs what it costs, and [you] have to be prepared to stick with the budget.”

To put it another way, if you’re going to spend nine months to two years working hand in hand with your chosen builder, be sure that you’re comfortable with their pricing policy. Don’t start the project by arguing over every line item, says Kraus.

Time Considerations

Not all custom homes are huge and expensive or take years to build. In general, though, you can use this rule of thumb to find how long it takes to build a custom home from Craig McMahon, president of Craig McMahon Architects in San Antonio, Texas:

• Smaller Homes (1,500 to 2,750 square feet) — Can be designed and put out to bid for construction in four to five months and completed in a year.
• Mid-sized Homes (2,800 to 4,500 square feet) — Usually take six to seven months for design and documentation and are completed within a year. Add another six to eight weeks for landscaping.
• Larger Homes (5,000 square feet or more) — Can take eight months to a year to design because there are so many choices to consider, and they typically require adjustment along the way to meet the client’s budget. Construction takes 14 to 18 months after design work is complete.

The flip side of the coin is that a large home with complicated geometry could take up to two years to complete. Site conditions and local regulations can also greatly impact a project. McMahon regularly designs homes for ranch properties where there’s a considerable amount of land; therefore, he divides projects into five phases:

1. Conceptual master planning: Different ideas for a home on the property are discussed and a design is selected.
2. Schematic design: Computer-aided design (CAD) floor plans are developed, along with early 3-D renderings to show how the home looks and feels on the site.
3. Design development: All building components are incorporated including interiors with selected finishes.
4. Construction documents: All selections are detailed on a set of building documents that include structural engineering plans.
5. Construction administration: The architect is engaged during the entire construction process.

Extra time must be allowed so that clients and all members of the project team can sign off on each phase before moving on to the next, McMahon says.

What About Semi-Custom or Spec?

Some builders advertise “semi-custom” homes — designs that are part of their portfolio. The customer selects a floor plan and “customizes” certain features and finishes, such as exterior materials and paint and carpet colors. To make sure the home has a look and feel consistent with other versions of the same plan, structural elements of the plan such as kitchen size and ceiling height can’t be changed. The number of selections is limited to keep costs down and ensure that construction stays on schedule.

Spec homes can either be designs that the builder has used previously, or a one-off design developed for a specific site and buyer demographic.

With both specs and semi-custom homes, you can’t do a significant amount of “customization.” However, if you have your eye on a spec home that’s in the early stages of construction, you might be able to negotiate the changes you want at a reasonable rate. Just make sure the contract spells out every detail.

Some builders offer an alternative to consumers for whom a custom build is too intensive. About 18 months ago, Houston’s Frankel Building Group started a portfolio-based homebuilding company, BuildFBG, that takes a semi-custom approach.

“We start with plans we’ve already developed and cut down on some of the decisions the client has to make,” says Scott Frankel. “It’s not as painstaking as a prolonged custom [build].”

Kraus Design+Build in Bloomfield Hills, Mich., has a portfolio of more than 100 plans, organized by type and square footage. If building custom from scratch isn’t on their radar, prospective clients can look through the plans online and narrow down the possibilities until they find a home they like. The key is that everything is customizable, says Bob Kraus: “Never once in 32 years has a customer said, ‘I want a home just like this one.’ When the world is your oyster and everything is available, you’re going to want to see it all.”

I Made A Decision, Now What

The best way to find the best builder is word-of-mouth recommendation, Grode says: “You’ve got to ask around a lot. Talk to someone who built a home with that builder. Were there cost overruns, or did the project cost more because of [changes] you made?”

Whether you decide on custom or spec, interview several builders and identify the one you’re most comfortable with, says Cataldo.

“You may be able to find a spec builder who can customize a home just the way you want it,” he says. “He’s already got the land and the plans and that might be the simplest [option for you].”

Take a page out of the custom playbook and request weekly meetings with your spec builder, Cataldo says. He suggests hiring a homeowner’s representative to assist you in the purchase of a spec home—an hourly consultant, such as a builder or designer, who can advise you on making selections.

“You pay [someone] to look at the plans, make suggestions, and do two or three site visits during construction,” says Cataldo. “With the help of an industry expert, you can get a great spec house customized for the least amount of money.”