Introduction
One of the most common ideas owners have when starting their custom home is that the home will increase property value enough so that if the property is sold in the short term, they will gain a profit on the sale. In this article, we discuss why this often does not work, how custom homes and spec homes (homes created to be sold) are different, and why attempting to do both at the same time often causes problems.
1. Defining Types of Homes
A ‘spec house’ (speculative home) is a home built for profit and for a market of potential buyers rather than a specific family. This is different from a ‘custom house’, which is designed and built for a specific person, family, or set of end users. There's also a third category, ‘production houses’, which are pre-designed and repeated across a neighborhood with little to no variation.
2. Two Different Clients
Two Different Mindsets
The success of any project begins with clear goals and stable parameters so that the team members can be aligned in their thinking. This allows for productive collaboration and efficient decision-making, since there is a shared logic. This is even more critical in a home project, which involves ~70,000 decisions to be made by the architect, covering everything from the size of the home, the rooms, the material selections, details, aesthetics, cost, schedule, etc.
The problem is that a spec home and a custom home have fundamentally different goals. One is for turning a profit, and the other, being for personal use, is more driven by quality of life, personal preferences, etc.
The Developer Client: When a developer creates a spec house, they are the client, hiring the architect, general contractor, engineers, etc. In this case, the design is driven by the current buyer market, and the budget and timeline of the project are firmly fixed to avoid loss of profit. Design decisions are made quickly, fewer design options are explored, and they may not even be presented to the developer. In general, the longevity of materials is less valued, and the finish quality of the house is often poorer than a custom home (buyers are less particular than custom-home end-users).
The Private Client / End-User Client: When a private client creates a custom home only for themselves, and they are not concerned with resale value, the design is driven by their specific needs and living patterns. The budget and timeline of the project are often more flexible to accommodate the client’s must-haves and wish-list items. The schedule is much longer to allow the client enough time to review design presentations. The number of design options and presentations is multiple times greater than what is created and shown to a developer client. The longevity of materials and the structure of the home are critical, and the expectations for the finish quality are much higher.
3. Schedule, Cost, Profit
Despite their stark contrast, most custom home clients want to mix the two approaches. They seek the quality and specificity of a custom home, paired with the cost and schedule of a spec home. More specifically, clients want the ARV (after-repair value: the value of the land after construction is completed) to be higher than their total project cost, so that if the property needed to be sold in the short term, they would make a profit.
Schedule: A custom house typically takes ten to twelve months for design and documentation. But that same house without a client involved, could be designed in three or four monhts. That gap isn't about the design work itself, it's about communication: the rounds of revisions, the time for a client to sit with a decision, and the extra step of translating internal design thinking into a presentaiton that a non-professional (client) can understand and approve.
Cost and Profit: Trying to build a true custom home that will also turn a profit is extremely difficult and unlikely. Most people think developing real estate is easy, when it is not: the margins are tight and everything needs to align for there to a healthy profit.
4. The Problem: Mixing The Two
When the two approaches are mixed within one project, it creates confusion. Headaches and problems with design, cost, and schedule are guaranteed to happen. And the professional team members are greatly hindered; they are unable to predict which mindset the client will take from one decision to the next: the developer mindset or the end-user mindset.
The average project requires us (the architect) to make 70,000 decisions, and many of those decisions would be made very differently for a spec home and a custom home.
The challenge is not just one of communication between the architect and the client. The reality is that the client also does not know how they will balance the two mindsets, at least not until they are faced with the decision and presented with this ‘fork in the road’. When this occurs, debate can be sparked, especially if the client is a couple. One partner might be thinking ‘spec home’, and the other might be thinking ‘custom home’. This scenario will occur hundreds of times over the course of months.
“The biggest gap between a spec home and a custom home isn’t really the cost.
It’s the process, how quickly decisions get made, and who’s making them.”
5. Solutions
The reality is that most clients will want to or need to balance the two approaches. Can the two mindset coexist? Yes, and this is how we do that:
Know the Clients: First, we, as the architect and designer, need to spend time understanding the clients we are working with to decipher what parts of the home are most important to them and what parts are less important. Then we can help them allocate their resources correctly. We won’t be able to predict the mindset behind every decision, but it will get us much closer and eliminate any major problems that would have otherwise occurred.
Design: For most residences, there is more overlap between what a specific family wants and what a broader market responds well to than people assume, especially in the fundamentals: good proportion, good light, a floor plan that makes sense for how people actually live. Where things diverge is in the finer layer: finishes, fixtures, a specific aesthetic, and features built around one family's particular use, like a dedicated art studio or theater room.
Good design for either path also means creating a few genuine "wow moments," a sightline, a piece of light, an entry sequence, that make a house memorable rather than forgettable.
Be Smart with the Spending: One of the biggest misconceptions is that custom automatically means expensive and spec automatically means cheap. This is very often the case, but not always! In practice, cost is mostly impacted by engineering complexity, square footage, glazing, and finish selections.
Efficient engineering can cut stuctural framing costs signifcantly.
Sizing a home to fit the user, and not building too large for the neighborhood, will cut costs and increase they likilhood of a sale if needed (many developers will build homes that are too large to appeal to a wide buyer-market). This also means have a floor plan that is efficient and gets the most out of the space it it utilzing. Many homes have terrible floorplans that not only feel terrible, but use more space than they need to, resulting in added construction costs.
Combining expensive window companies with more affordable ones in secondary spaces can help save costs and have virtually no impact on the home aesthetics or performance.
A custom-designed bathroom can use inexpensive materials and still read as intentional and well-resolved.
Client’s Duty: Most clients underestimate how particular they become once real money and permanence are on the line. Decisions that felt easy early in a project often get revisited once a client fully grasps the scale of what they're committing to, and that shift, however natural, has a real cost in time and revisions.
The first step isn't picking finishes, it's being clear about the timeline, the budget, and how involved you actually want to be in the process. Running real numbers, rather than an optimistic guess, tends to remove a lot of the pressure that doesn't belong in the decision in the first place.
“Most houses are simply not good.
If a home has good space, then it’s in the top ten percent of homes, spec of custom.”
4. Soft Costs vs Hard Costs
Hard costs (construction costs of materials, labor, and the general contractor’s overhead and profit) make up the majority of the total project cost. Soft costs (architect, engineers, permitting, designers) are a much smaller part of the total cost, typically 15%-25% of the total project cost.
As stated above intelligent design can help you lower costs, but that doesn’ thappen without a stellar architecture/design and engineering team.
It may be tempting to cut corners by hiring a cheap architect and engineer, but this will undoubtably increase the construction cost multiple times more than any fee difference between a cheap design team and a reputable one. Going cheap with the design team will also lead to delays in the schedule.
This means that if you’re builing on a tight budget, the fees of some of your soft cost professionals may be high relative to the construction cost. For example, the architectural work it takes to design a floor plan does not increase or decrease based on the construction cost, if anything it takes more work/skill/talent to create a plan that is efficient with space and also feels good to live in.
“Cutting the professionals responsible for planning is like walking into a battle without any strategy. It doesn’t go well.”
Conclusion
Spec and custom aren't just pricing tiers; they're two different relationships to a house. Confusing the two doesn't just complicate the budget; it complicates the timeline, the design process, and the working relationship between owner and architect.
Getting clear on which path actually fits, and being honest about it early, is what keeps a project from carrying weight it was never meant to hold.