Custom Homes vs Tract Homes vs Spec Homes

The homebuilding world is full of confusing (and often misused) terminology. Below we define each of these kinds of home construction:

Tract Homes (or production homes): These are homes built on developed land in a typical sub-division. The developer tries to pre-sell the homes before or during construction. They tend to be built with minimal customization but often permit the owner to select finishes and minor variables in floor layouts and façade design. These homes can be delivered quickly and affordably but come with minimal customization.
 
Spec Homes: Short for 'speculative homes', this category of construction is initiated by a developer before the home has an owner. These kinds of homes are risky for developers because their assumptions on price may be wrong or the final sales price may move against them as construction progresses (such as 2007/2008). Spec home builders will try to pre-sell the home during construction. If this happens the owner can work out a deal to specify the final finishes and details (depending on how far along construction is).
 
Semi-Custom Homes: Semi-custom homes are homes developed by individual homeowners but built by a builder who has a pre-selected library of floorplans, options and packages. They can be built wither on the builder's lot or on the homeowner's lot.
 
Custom Homes: Custom homes are homes developed by individual homeowners. They may or may not hire a general contractor. But either way, the owner bears the key risks like cost, lot viability and timeframes. The key benefit is that the owner gets 100% control of the build by bringing their own floorplan, material specifications and designers. By cutting the developer out of the equation, costs can be reduced but the lion share of that savings tends to end up going to the builder who charges more for the complexity and risk involved with a custom build.
 
Developer Floorplan Customization Financing Construction Timeframe
Tract Homes Company From Builder Low Developer Financing 5-12 mos.
Spec. Homes Company From Builder Low Traditional <6 mos.
Semi-Custom Homes Owner From Builder Medium Construction Loan 9-15 mos.
Fully Custom Homes Owner Bring Your Own High Construction Loan 9-15 mos.

How to Decide?

There's a number of factors involved in making the right decision for your new home:

Location: Tract builders build in sub-division tracts which limits your location to places that developers are currently building. If you have a very specific location or lot in mind then you will need to go semi-custom or custom.

Lot Configuration: Since tracts are specifically developed to subdivide the land into new lots, tract homes are often designed to maximize the number of lots which means smaller and narrower lots with taller and deeper houses. Resultantly, it's fairly rare to find a tract developer who is building single-story homes. If you are looking for a very specific lot then you will likely need to go custom.

Customization: Because of the need to appeal to a broad market of potential buyers, tract and spec homes are designed to appeal to the largest number of people possible. Larger, complicated or specialized builds will all need to be custom.

Cost: Since there's so many variables involved, it's difficult to definitively say that one kind of construction is cheaper than another. The biggest variable for build cost is the developer's profit. Semi-custom and custom homes can be cheaper (ceteris paribus) than tract/spec homes because the owner cuts the developer's profit out of the equation.

Tract and spec homes tend to target the middle of the affordability spectrum because it's safest for a developer to appeal to the median home buyer. As a result, it can be rare to find, large luxurious tract homes.

So tract homes often cost less than custom homes but only because they tend to be smaller and less luxurious than custom homes.

Semi-custom home builders are typically able to offer a lower price than fully custom home builders because it's less risky and less work to use a plan that they've built before. Semi-custom builders often design floorplans to minimize their costs by making efficient use of materials, trusses, and labor.

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