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Build it and they will buy...the return of the spec home

By
Real Estate Agent with Downing-Frye Realty, Inc. Naples, FL

For some time now I've been writing about the ongoing construction build in virtually every development in the region where there is new construction. This was all based on first hand observation while showing property from south Fort Myers to Naples and sales to buyers I represented.

The new construction was fueled by sales activity and a depletion in standing inventory the developers were holding from the boom cycle. It's all gone.

Return of the spec home, not the crazy days...

Some buyers need to see it, feel it, touch it, buy it. Many people love the idea of a new home but dread the thought of going through the process... all the upgrades and decorator items to pick, all the colors, exterior elevations...etc. With a spec home all the choices are already made by the design professionals and as a rule they don't go "over the top" with upgrades and they don't do wacky color schemes because the property needs to appeal to a broad range of potential buyers. This leaves plenty of room for the new buyer to personalize in many ways.

As usual, the best deals can be had on standing inventory and a spec home well along the construction cycle. Why? The developer wants to chalk up another sale and move on to the next. They would much rather make a fair profit and not have to sit on the investment burning interest dollars and expense dollars waiting for it to sell.

The buyers pictured to the right just closed on their newly completed home two weeks ago. The build cycle was about four months.

If you are thinking about new consturction in southwest Florida from $200,000s to more than $2M from a no frills neighborhood to the most posh country club, from a golf course to private boat docks and gulf access, we have it all in southwest Florida.

 

Comments(35)

Joy Tiz, SFR
Desert Homes & Land Inc, Palm Desert, CA - Palm Desert, CA
Melanie, We are pretty much at a at a standstill here in the Palm Springs/Palm Desert area. Interesting to hear about our neighbors in Norco.
Sep 26, 2011 03:10 AM
Mark Welsh
Kirkland, WA

I think that it is funny that everone has pretty much agreed spec homes are terrible, but for a majority of people, thats where they live.  Imagine how many have been sold over the past 20 years and if you would have sold them, how much you could have made.

Sep 26, 2011 03:13 AM
Kate Akerly
Kaminsky Group - Manhattan Beach, CA
Manhattan Beach Residential Sales

We represent sponsors in NYC and can attest to the fact that the new development business is alive and well.  That being said, buyers here are not purchasing on spec.  They want to see it and feel it.  Gone are the days that developers even bother bringing a product to market before the building is largely completed.  We are bringing projects to market no more than 3-4 months before we can began closings.  The models are done, most units are done, and the only thing left to do is the details and common areas.  

Sep 26, 2011 03:38 AM
The Derrick Team - Indy Metro Realtors
Carpenter Realtors - Avon, IN
Your Pet Friendly Realtors

They never really quit in our area, just didn't build as many as they used too.

Sep 26, 2011 03:42 AM
Kimo Jarrett
Cyber Properties - Huntington Beach, CA
Pro Lifestyle Solutions

Adding more inventory in a saturated market doesn't make sense to most speculators, better to buy a fixer and  renovate, upgrade and flip. Easier, faster, more profitable and marketable, don't you agree?

Sep 26, 2011 04:30 AM
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Yes Bob, we're starting to see a slow trickle in the return of builders and some spec homes.  A good sign!

Sep 26, 2011 05:29 AM
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

I am just wondering where in the heck the money is coming from to build these homes.  It seems pretty clear the banks are not doing construction loans much these days.

Sep 26, 2011 05:31 AM
Bob Pisa, Broker Associate
Downing-Frye Realty, Inc. Naples, FL - Naples, FL
Commitment, Service, Satisfaction...

Kimo,

I can't disagree with what you said as it pertains to the class of buyer you mention - speculator/investor.

The buyer looking for new property and perhaps a builder's spec home is most often an end-user or second home buyer. A "fixer and renovate" is exactly what these buyers don't want and they are not buying to flip.

As for a saturated market, that's coming to an end in our local region. One year ago our MLS carried more than 12,000 listings, at the end of August the number of active listings dropped below 7,000.

Sep 26, 2011 05:32 AM
Jim McCormack
Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-796-6898 - Murfreesboro, TN
Nashville Short Sale REALTOR - Stop Foreclosure

Unfortunately, I think while new construction has a lot of appeal to home buyers, it is almost always a bad deal in this market environment.  Rather than appreciation, today new construction is most likely to behave like a new car.  There are many neighborhoods in Nashville TN where the builder is still building at the same time that homeowenrs who purchased homes in 2007 and later are trying to sell their virtually new homes (most without success).  Some of these are distress sales (short sales and foreclosures) and they comprise most of the sales, but at much lower prices points (typically 15%-20% or more below current new construction cost).  I just can't see how this helps a home buyer.

Sep 26, 2011 05:34 AM
Bob Pisa, Broker Associate
Downing-Frye Realty, Inc. Naples, FL - Naples, FL
Commitment, Service, Satisfaction...

Jirus, large well established builders (with plenty of assets on the books) are having no trouble with financing especially when everything they build is selling.

I can see where smaller one-off builders could be a different story.

Sep 26, 2011 05:35 AM
Max Boyko
Team Hybrid - REMAX Gold - Sacramento, CA

Be careful when buying from many of the builders... if they have the home sold during construction they will try to spend as little as possible to finish it and get the escrow closed.

Sep 26, 2011 07:03 AM
Jeff Pearl
RE/MAX Distinctive / LIC in VA - Lovettsville, VA
Full Service Full Time Realtor

Specs require careful watching of the market, but usually they sell eventually. One builder in this area built 20+ spec homes not long ago thinking things we're heading up. The sales lady told me that they've only had 6 people come through and visit models during the last 2 months. They are worried. On the other hand, I know some small builders that have just picked up some new home building jobs. One has 8 houses to build, one has 5, and another has 3. Activity seems to happen in spurts sometimes.

Sep 26, 2011 07:55 AM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Bob, I think the fact that virtually no building is going on here in Ocala & Marion County will eventually lead to a lack of good homes.  The forclosures are less than 1/2 of what they were a year agao and overall inventory has dropped ~30% just since the 1st of the year.  I feel a market swing coming sooner than the pundits predict

Sep 26, 2011 09:45 AM
Dorte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Bob,

We still have some new homes in our area. I find that builders are still offering product, that was popular some years ago instead of switching to what the newer generation is looking for. Maybe they are not out there buying en masse yet, so they are not influenzing the product as much as possible.

Sep 26, 2011 09:57 AM
Alan Grizzle
Chestatee Real Estate - Dahlonega, GA
Full Time Realtor, Lifelong Resident of Dahlonega

My market is not ready for spec homes yet. I am selling homes for 30 to 40% less than you can build one. Finding a buyer that will pay that much more for a new home and then getting an appraisal on the new house for the loan is a challenge.

Sep 26, 2011 02:21 PM
Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

We are starting to see spec homes here also. Quite a number of lots have been sold recently. Maybe we are on a comeback.

Sep 26, 2011 02:43 PM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

When things turn they can turn really, really fast.

Sep 26, 2011 06:11 PM
Bob Pisa, Broker Associate
Downing-Frye Realty, Inc. Naples, FL - Naples, FL
Commitment, Service, Satisfaction...

What a great response from all locales!

I would sum it by saying the old adage holds true - real estate is local. Some areas have yet to see improvement, some areas are starting to see improvement, and yet others are clearly in the upswing.

I don't doubt for a minute that whatever mode your area is in there will ups and downs to come. It's the overall trend that matters. Just look at the two graphs below - closed sales on top and average price paid on the bottom from January 1, 2006. Ups and downs all along the way, the extreme peaks and valleys are totally predictible with the seasons in southwest FL. Take note of the bold trend lines.

Sales are starting to level off and price paid is going up. This is, at least in part, due to the dramatice drop in inventory - some 40% from one year ago.

Sep 27, 2011 02:26 AM
Carrie Sampron
Home Smart Realty Group - Highlands Ranch, CO
ABR SFR & Kathy Sampron (303) 931-3629 Highlands R

Bob: I love a good spec home. Not only are they beautiful, but usually the only new home where you can negotiate price. Carrie

Sep 27, 2011 10:25 AM
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

Our production builders have been building spec homes throughout the downturn and now they are swooning over the choices they have picking up foreclosed lots in failed neighborhoods.  Our small builders who built one or two a year are still dead in the water.  Resellers have a hard time believing how much new construction is out there because they keep hearing that money is not available.  The truth is that, in some areas of our market, new construction and distressed sales make up 60 to 70% of purchases.  

Sep 27, 2011 12:27 PM