Spec Homes

Jason and I like to have a certain amount of specs going each year. A spec or speculative home is one that is built and financed without a buyer on the back end. The speculative part is that you feel you have a product that people want and you are willing to bet a large loan on it. Builders can get in trouble if they lever themselves up too much, and this is an area that almost everyone cautions you on. Most of my conversations with people who I meet for the first time go like this.......Oh, you're a builder? How many specs you got going right now? After a while, it's almost like it's a bad word or something. Now keep in mind, this is not an endorsement to build a spec, but if you do you may want to consider a few things:
First, make sure you study the market well. Make sure you know everything about the neighborhood you are building in, the ammenities people are looking for in terms of finish-out and how long things are lasting on the market.
Second, get a lot of eyeballs looking at your plan. People love to look at floor plans. Use this opportunity to have folks give you feedback and punch holes in the plan. You'll be amazed at what you pick up. Usually, we have anywhere from 4-10 different people look at each plan we are getting ready to build. It is not uncommon for us to revise plans several times until we get it right.
Third, don't come in on the high end of the market comps for the neighborhood. Real estate is like a pyramid, there are more people at the bottom of the pyramid (where there is a lot of space) that can afford homes than at the top, and it is no different in a neighborhood.
Lastly, stick to a budget. I was at an awards ceremony where a prominent builder won an award for a spec home design and got this huge trophy. Well I know for a fact that builder didn't make much in the transaction because the budget was not respected. You have to respect the budget. Don't get me wrong, we fall short too sometimes but we are always conscious of it. Think about it, you are investing 8-12 months of your time and a lot of money into a project so you may as well make the best of it.
Spec homes can be a great process for a variety of different reasons, and we always incorporate them into our strategy. Use caution and follow some of the basics above when considering whether or not you want to do one.