How do you answer this question: Why are you tempted to market a spec home for sale? You believe you can design and create appropriate specifications that will entice a buyer for the right-sized home at the right price; you like the idea of designing and specifying the finishes so you don’t have to await the buyer’s decision for each and every phase; you can project a reasonable profit; building a spec home is so much easier than building a custom home, even if there’s more risk. Or is it all of the above?
If your answer is all of the above, then answer this question: Why are you hesitant to build a spec home at this time? You are concerned the market value of what you build might continue to drop while under construction; you do not want to tie up the capital required to control the land; you may be unable to secure spec construction financing; this home may under-appraise when complete and under contract. Or is it all of the above?
If your answer is all of the above, then consider the following alternative to the traditional buy-land, market-a-spec-house sequence.
Locate a lot for sale you are confident will support a spec home. Request a meeting with the owner/seller. I assume for this example there were not many lot sales, thus their anxiety to increase chances of selling through your plan. I also assume there is not an abundance of new homes for sale, as is the case nationally.
Establish your credibility and track record with marketing and selling spec homes you built and sold. Present the sales history of lots and homes in the market you are working in.
Your objective is to secure an exclusive right to market a spec home for sale on the seller’s lot without buying it — at a better price than he previously offered anyone else. Your offer is to provide all the necessary tools to market a home on the seller’s property.
Select a house plan with a killer front elevation, a perfect floor plan and an economical price point for your construction budget. Complete your own market research to confirm the asking price gives value at today’s price point. Better yet, it is priced so competitively that your likelihood of a presale is excellent.
Agree to provide a beautiful digital- or hand-drawn perspective of the front of the home, a floor plan and specifications that are included in your asking price. Invite the architect whose plan you selected to participate by agreeing to be paid for his plan only if the effort results in a sale. Then he will get paid an agreed amount for the construction drawings and sealed sets. Promote him as the featured architect and do not forget to ask for future priority when he has a client whose plan is going out to bid. Now the seller has a larger buying audience since you will attract a customer who wants a qualified builder with a good price on a new home.
Contract terms with your seller are critical. The best scenario for you is to have an exclusive time period to market your spec on his lot. A secondary position for you is a nonexclusive arrangement wherein he continues to sell the lot as is.
You are at risk if he sells the lot and you are out all your out-of-pocket cash for marketing tools and all your time. But if you invested only several thousand dollars and several meetings, you still avoided all the cash and debt requirements of marketing a spec home on a lot you own. And, you had the added benefit of raising awareness of your company, which is far better than sitting in your office waiting for the phone to ring.