By Ana Durrani
Mar 9, 2023
Buying a newly constructed home is exciting, but there are a lot of different options. Finding the right home style is important, whether it’s a custom-built house on a plot of land you just bought or a move-in ready home in a brand-new, cookie-cutter neighborhood.
Tract, spec, and custom homes have their differences, and understanding these differences can better inform your homebuying decision.
“Understanding the differences in home type is as essential as understanding your true costs, from monthly mortgage payments to insurance to electric bills. Home type needs to be matched to your preferences and budget with a long-term perspective,” says Megan Fox at Compass.
Each type of home might fit better with a certain type of buyer. Which build you choose ultimately comes down to buyer preference, budget, and stage of life. Here are some things to know about the main types of new-home construction.
A tract home is a residential development where several homes with the same design are constructed on a large plot of land. Tract homes typically have two or three different layouts.
“The buyer for a tract home is someone who wants to live in a newer home in a development. They are not as picky about the design,” says Fox.
Filippo Incorvaia, founder/broker with FI Real Estate in Miami, says the intended buyer of a tract home is usually a first-time homebuyer or someone who is looking for an affordable option.
Tract homes are typically constructed in suburban areas and are more affordable due to cost-saving measures of constructing multiple homes with the same design.
“They are the least expensive of all three types,” says Fox. “There are usually several homes available as many are built at the same time.”
The advantages of this type of new construction are that it tends to be located in areas with amenities like parks, schools, and shopping centers. Tract homes are usually built in established neighborhoods with easy access to transportation.
But on the flip side, tract homes lack customization because their designs are predetermined, giving buyers limited choices on finishes and features. They can have a cookie-cutter feel and lack personality. Then there’s their lack of privacy.
“Tract homes are often built in densely populated areas,” says Incorvaia.
A spec home is a newly built home that doesn’t have a specific buyer in mind.
“These are usually marketed toward buyers who want a new home without the hassle of building it themselves,” says Incorvaia.
This type of home is typically built on a property the developer already purchased in new developments or neighborhoods. Since the homes are newly constructed, they meet the latest building codes and have modern features. Plus, they often come with warranties for appliances, HVAC systems, and other features, giving buyers peace of mind, says Incorvaia.
But spec homes have limited customization options since they are often built before a buyer is secured, and they can lack character since they are often built quickly without a specific buyer in mind.
There might also be additional costs to ownership.
“Buyers may be surprised by additional costs associated with purchasing a spec home, such as upgraded features or HOA fees,” says Incorvaia.
A custom home is one built to the exact specifications of a buyer.
“These homes are intended for buyers who have specific design preferences and are willing to pay for a one-of-a-kind home,” says Incorvaia.
But there is a downside to custom homes. They cost more than other types of builds because of the higher level of customization and attention to detail. Plus, their construction can take more time since they’re built from scratch.
“It can take a long time to complete and will generally be the most expensive type of new construction,” says Fox.
And there’s more risk.
“Since the buyer has more control over the design and construction of a custom home, there is more potential for errors or changes that can lead to additional costs or delays,” says Incorvaia.