Aug 19, 2020
Open Up New Possibilities With Spec Homes
When the number of house buyers outstrips available homes, developers step into the gap, producing brand new homes with all the latest amenities and features. Often, these homes are built on speculation, without a specific buyer in mind. When that’s the case, they’re known as “spec homes.” They’re created in the hope that a hot housing market will quickly provide a buyer.
This hope certainly comes to realization in Phoenix’s blazing hot housing market, and many developers are confidently producing homes each month, knowing that they’ll have plenty of takers as soon as the house is complete (and often, even before then).
The influx of spec homes in the area presents a unique opportunity for savvy Realtors and real estate agents to present new homes their clients will love. Have you explored this growing market segment?
Defining Spec Homes:
There’s a lot of confusion around spec homes; not least of all because terms around new housing can be so confusing. “Spec home” is often used interchangeably with terms like “move-in ready,” “tract home,” “semi-custom,” and “production house.” While there are many overlapping characteristics, spec homes have a specific set of advantages that can appeal to certain clients. Understanding the different kinds of properties available is the first step to understanding the unique benefits of spec homes for your clients.
Understanding the Arizona Spec Home Market
Builders in Metro Phoenix continue to build spec homes to compete with the resale market and their builder competitors. The current inventory of spec homes as of March 26 was over 1,700 valley-wide. While many of these are sold prior to completion, there are hundreds of brand new, move-in ready homes available. With build times averaging 4-6 months, these homes are considered a premium and rarely discounted.
The advantage to the buyer is a brand new home with builder incentives, warranties, and current design finishes. The advantage for the Realtor who shows new homes is a quick closing without negotiating a home price with the listing agent, and potentially their compensation to get the deal done.
Millennials and Retirees Gravitate Towards Spec Homes
Spec homes appeal to a wide variety of buyers. However, there are two major demographics that drive up the need for spec homes and other entry-level homes; (1) first-time millennial home buyers who need an affordable option, and (2) senior retirees who need to simplify. Although the needs of these two groups can differ widely, there are three major concerns that they both have:
Primary concerns of both young first-time home buyers and senior downsizing couples:
- Price point: NAR’s Generational Trends report states that the majority of buyers in certain key demographics in Arizona bought homes under $300,000:
- 72% of buyers under 36 years old
- 67% of buyers aged 52 to 61
- 69% of those aged 62 to 70
- Ease and speed of transaction: For both first-time homebuyers and senior retirees, convenience is extremely important. They’re likely to happily sacrifice customization options in order to save time.
- Community and location: Both demographics value convenience in their location, although senior communities are more likely to favor rural and suburban areas with local access to basic conveniences, whereas millennial buyers are more likely to favor suburban and city-central locations. In either case, spec homes can answer their needs. These homes are often developed with community and location amenities in mind to suit the demographic taste of their ideal customers.
Advantages of Spec Homes for Buyers
Although hipsters might disdain the idea of tract homes and planned communities, millennials are now settling down and having children, and the concrete advantages are more and more appealing. Green spaces for walkability and community activities? Check. Safe streets for children? Check. How about neighbors who share your interests and priorities, as well as, often, your age? Check. Young families get to enjoy all of the privileges that drew people to the suburbs in the first place: neighborhood friends that bike home from each others’ houses in the evenings, safe and quiet neighborhoods, and nearby friends that are easy to connect with.
Many of these neighborhoods also come with robust HOAs that keep living standards high, enforce neighborhood safety standards, and plan events that bond the community.
What if your client isn’t a young family, but rather, a retired couple looking for a place that they can settle down worry-free? For these individuals, the convenience and community of a pre-planned neighborhood can be even more appealing. Communities that cater to 55+ residents continue to rise in the Phoenix metro area, and many of these are new developments with spec homes on the market.
LESS DECISION ANXIETY
Although many home buyers savor the ability to customize their own dream home, others are quickly overwhelmed by all the decision-making that comes with it. When it comes to building a floor plan from scratch, determining styles and window positioning, selecting building materials, and tailoring features to stay on the cutting edge in order to preserve resale values… well, it can easily become way too much. While some may consider prescribed design features a disadvantage, others are happy to worry less about the details and jump into a new home that’s been expertly planned and designed by the professionals.
QUICK TURNAROUND TIMES
The average resale takes months to close, thanks to paperwork delays, inspection scheduling, renovation requests, and all of the unexpected changes that can crop up between two families as months pass. A built to order home can take up to a year to finish. Spec homes, on the other hand, usually have a much faster turnaround time than a resale or a custom home. In addition to the move-in-ready aspect, spec homes can have a much more fast and simple purchase process because developers are more sure of their price points. They’re also free from emotional entanglements that cause delays from sellers.
Of course, turnaround time varies greatly from one home to another. Some are move-in-ready right away. Others hold off on installing finishes so that buyers can customize colors, cabinetry, and appliances before move-in. However, even with pending finishes, a spec home can often be ready in under a month.
Oftentimes, it’s possible for new homeowners to move in as little as two weeks. For clients that have cost concerns, this is a big deal. Sustaining two homes for a month or more (either by paying the mortgage or the rent) can be extremely taxing. On the other hand, with such a hot housing market, many find themselves at odds when the sale of their home happened faster than they’d originally anticipated. Their things are in storage, and they’re stuck paying per-week rates at a hotel until they can move into their new home. These buyers are extremely motivated to find a place fast and move in right away.
BRAND NEW HOME
If convenience is high on your client’s list, they may not have the time or expertise to take care of design updates themselves. They just want to move into a house that already has the newest fashions, rather than dealing with the carpeting and appliances that were all the rage during the Reagan administration. These modern fashions may include eco-conscious design, smart home integrations, a flexible bonus room for a home office, or spaces that seamlessly transition from indoor to outdoor.
Modern home buyers also favor brand new homes because they eliminate the surprise factor. While it’s still wise to schedule a home inspection to be sure that everything is as expected, new homes are appealing because you can trust that everything is up to the latest codes and safety standards. All appliances are new and can be expected to last years before they need to be replaced. When moving into an old home, on the other hand, it’s important to consider the extra costs of replacing the roof, repairing the HVAC system, or even replacing flooring that’s harboring water damage or mold. A new home is far less likely to surprise you with extra repairs and replacement costs.
SEE BEFORE YOU BUY
As a realtor, you know just how important gut feelings are for your clients. Buying a house is a largely emotional decision, and giving your clients the chance to come visit the house itself is invaluable. Most spec homes have at least one house on the lot that’s ready to be shown. Of course, your buyers may be looking at a different floor plan or a different package of features and finishes. However, there’s almost always a way to allow your clients to really get a feel for what their finished home will look like. This translates into confident decisions and higher levels of satisfaction.
Is customization important to your client? As mentioned above, spec homes are often available at a variety of stages. Many builders hold off on installing finishes such as cabinetry, carpeting, and paint so that they can be selected and customized by the buyer. If the buyer gets involved earlier in the build process, they can also have more control over the floor plan, and features such as patios or garage placement.
The Realtor’s Role in Buying a Spec Home
Some buyers in the market for a spec home make the mistake of assuming that they don’t need a realtor. On the surface, it appears to be a direct-to-client transaction, and budget-conscious buyers are hoping to get a discount on their final sale price since they don’t have a Realtor’s commission to worry about.
First of all, developers work agent fees into their final asking price, and don’t adjust or give discounts just because no agent is involved. Secondly, real estate agents and Realtors serve to protect the interests of the client. Working without this protection when making what may well be the biggest purchasing decision of their lives thus far is extremely risky. While working with developers who are professionals in the housing market, who are edging for profit margins that are as high as possible, it’s important for clients to have a real estate professional who’s on their side. Agents negotiate for the best price, ensure that agreements are handled fairly, and extract all the perks and upgrades possible out of the transaction.
Advantages of Spec Homes to Realtors and Real Estate Agents
- Give buyers what they want: By knowing what kinds of spec homes are available in the area, you’re catering directly to two of the hottest demographics in Arizona: millennial first-time home buyers and retired 55+ couples and individuals.
- Stay on top of one of the Phoenix housing market’s fastest-growing sectors: As illustrated in the graph above, newly-developed spec homes are a major part of Phoenix’s rapidly-growing housing market. If you’re skipping this amazing resource when you give clients their options, you could both be missing out.
- Steady out seasonal peaks and valleys: Spec home sales are specially planned to be more steady throughout the year, so you can get relief from the stress of a frenzied busy season and the cutbacks of the winter housing-market doldrums.
- Specialize in a different kind of negotiation: Securing the best deal from a developer is a different ball game from working with people who are selling their own family home. If you can specialize in this unique aspect of agency, you can carve out a loyal, streamlined market for yourself.
Be the First to Know About Local Spec Home Opportunities
How can you effectively integrate spec homes into your portfolio? With such fast turnaround times, the old methods of scouring weekly or monthly publications simply won’t do. That’s where REA Scoop comes in. REA Scoop is an app that gives you the regularly-updated inside scoop on new spec properties available throughout the metro Phoenix area. The user-friendly app allows you to filter by location (either geographical area or zip code) as well as size, year built, design features, and more in order to find the right new home for your client. You can even share information from the app directly with your clients.
REA Scoop gives you the opportunity to find gorgeous properties that you wouldn’t be able to otherwise, capitalize on the fast-turnover aspect of spec homes by immediately identifying and sharing new opportunities, and become a specialist in a highly desirable field, perfecting the process of negotiating spec homes for your clients.
Check out reascoop.com to learn more, or find us on Google Play or the App Store.