What is a ‘Spec’ House?
Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!
When a builder constructs a house without a contract, it is known as a spec house or a speculation home. There are several advantages to the builder to build a spec house including timing, financial gains and workforce retention. There are advantages to the buyer to purchase a spec house as well. These include no delay in moving in, an overall lower price, and a simpler contract.
There are two common reasons for contractors to build spec houses. One is the start of a new development. The developer entices the contractor to build a spec house either as a model or to get the project going. In exchange the developer sells the lot for a lower price or provides other types of incentives, first choice on lots in the development, waiver of community fees or a reduction in the sales brokerage fees.
The second most common reason for contractors to build a spec house is to maintain regular income for the company. It is important for a contractor to demonstrate regular and consistent revenues. Bankers favor businesses with consistent income and high levels of production. These types of businesses reduce risk for the loan portfolio of the bank. In construction, the ability to borrow money is required. Very few contractors can front the capital it takes to build homes.
Once the decision is made to build a spec house, the contractor will benefit from the following advantages:
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