Builders may specialize in tract, spec or custom homes so learn the differences and figure out which one is right for you and your home-buying budget.
Do you go with big-name contractor or pay more for a smaller, custom company to build your home? How do you know if you're getting a good deal?
It can be difficult to balance the price and performance of your new homebuilder without doing your homework.
What does spec, tract and custom mean?
When it comes to buying a home, you have three broad choices.
First are "spec" homes built by a large, typically well-known companies. They can be any style and size and are often found in new communities.
The term spec here means "speculative" because these homes are built without a buyer in mind. Instead, they're designed using popular floor plans and features in areas with growing real estate markets and then sold to any interested buyers.
Next are "tract" homes, which are sets of homes with almost identical floor plans and upgrades. Also made by large homebuilders, the cost of tract homes is less than a spec home.
Custom builders are the final option. These may be popular builders with a custom design department or a smaller builder who does only a few homes per year.
Costs here can be much greater than either spec or tract homes (for example, blueprints for a custom home can run up to $25,000), but you retain full control over what is built, how it is built and the features included.
What are the costs of building a home?
Costs for a spec or tract home build are usually upfront. If you choose a spec home, for example, the builder may be willing to add a few features or slightly modify the floor plan for a fee, but costs are almost entirely ironclad.
Big companies making spec and tract homes account for approximately two-thirds of all the homes built in the United States, leaving a small but growing segment of the market for custom builders.
Custom built homes, meanwhile, come with several cost sources. The first are upgrades you request. These can be double sinks in a bathroom, a top-of-the-line fridge or in-floor heating for your bathroom.
Second, custom builders may encounter issues beyond their control and, as a result, transfer costs back to the homeowner. If materials arrive late or work needs to be redone, the homebuilder will charge this cost to you.
How to evaluate homebuilders
Choosing a homebuilder means first considering performance and then evaluating price.
Licensing and certification are paramount. Although most home builders require some kind of certification from a state agency, not all states have the same requirements and many certifications are not transferrable.
Some companies will operate without proper licensing in the interests of affordability, but this almost guarantees shoddy work.
Next, make sure to evaluate a homebuilder's work before signing a contract. This means asking the builder about recent projects and references. Start by calling, and then ask to see the work in person.
Also take time to search out reviews of your prospective builder online, and trusted sites like Angi provide a good place to start.
Evaluating price can be more difficult since local material costs, contractor availability and unexpected delays can all conspire to increase the final bill. There are, however, several general rules.
First, the cost of a custom home will typically be at least double that of a similar-sized spec home.
Second, real estate prices do not indicate home building cost. In an inflated market, the costs to build can be much more reasonable than they may appear.
Still, it's often better to compare price against performance: how long it takes your contractor to return phone calls, how much notice you need to give before arriving at a site and the small touches on your house that make it home.
Often, these are the simple things like making sure that screws on light switch plates all align properly or that carpet is tightly tucked into corners and stapled along stair edges.
You also want to consider a home warranty. Home builders may offer their own guarantees for workmanship or partner with a recognized national plan. Make sure the warranty you're offered contains all the right compenents. Avoid any company that claims you don't need a warranty.
Editor’s note: This is an updated version of a story originally posted on July 17, 2013.