A SPEC home is a house built with the intention of selling it for a profit, either as-is or with very minimal changes. The builder completes the construction “speculating” that someone will buy it once it is complete. In essence, a SPEC home is a move-in-ready home that a developer builds for an unspecified buyer, and traditionally it is constructed before a buyer purchases it.
SPEC homes have some benefits that buyers like.
- First, SPEC homes tend to be more affordable than custom homes. Usually, the builder keeps the property neutral, and uses mid-range builder grade materials.
- Second, buyers who do not have a year or so to wait on a build love the quick turnaround that SPEC homes offer.
- Third, risk is reduced. Since the SPEC home is typically already constructed, you can walk through the house and see exactly what you are getting (ceiling height, size of bedrooms, views from all levels, etc.). This is especially attractive when buying in a foreign country.
- Finally, because it is a new construction, there are generally warranties on the structure and appliances.
In 2021, we saw an expansion in the real estate cycle in Los Cabos. Buyers came from all over the world with the goal of buying property in Cabo. Quickly and dramatically, the inventory of available property shrunk. Savvy developers quickly jumped into action and began building everywhere. Along with new developments, we are beginning to see a lot more SPEC homes being built.
A newer trend is that some builders are putting their SPEC homes on the MLS market before they ever break ground on the project. Let’s call these homes “Pre-construction SPEC homes”. In these situations, the buyer is purchasing a lot and a promise that the house they have seen on a floor plan or rendering will be built and delivered to them, move-in-ready, in a specified amount of time. For many people, this type of home purchase might be a little unnerving.
If buying a SPEC home is something you are considering, how do you prepare yourself?
- Make sure the builder has a good reputation. Ask to view other homes the builder has already completed and for references.
- Ask very specific questions about the building contract. Make sure you completely understand the blueprints, and get pictures of all of the finishings (cabinet wood type and stain color; specific brands for sinks, toilets, and all appliances; size and location of water cisterns, breaker box; brand of water heater; capacity and brand of AC units; and flooring, to name a few.).
- Hire a local personal attorney to review the building contract. This is a very important step.
- Use a real estate agent who is familiar with SPEC home purchases. There are a lot of moving parts in the purchase of a SPEC home. Especially if you live in another town (or country), you need a qualified, experienced agent who will check up on the property and keep an open line of communication with the builder.
- Deposit your money into an independent third-party escrow company and consider scheduling agreed-upon, performance-based release of funds for the builder to use during construction.
- Remember that the home is a SPEC home, not a custom home. You may approach the builder through your agent with requests to make small changes, but be prepared to pay for any additions or changes, should the builder agree to make them.
- If you are starting from the ground, plan on the time of construction to take at least a year. If the construction has already begun, the builder is the best person to estimate a completion date.
- About 2 weeks prior to completion, have the house inspected by a reputable inspector familiar with building codes and requirements for Cabo.
- Prior to closing, conduct a thorough walk-through with your agent. Take note that all appliances and finishings are the same as they were in the initial plans.
- If you need to move in but there are outstanding repairs or corrections, that need to take place, talk to you agent about doing a “hold-back” of escrow funds until the corrections are completed to your satisfaction.
- Be patient, and try to enjoy the experience. Realize that everything moves a bit slower in Cabo. In addition, we are experiencing the same building material shortages that the rest of the world is experiencing.
Buying a pre-construction condominium in a brand-new development has its own set of risks and challenges. The focus of this article is on purchasing a pre-constructed house, but many of the caution points are the same. A future article will cover additional due diligence items for purchasing a pre-construction condominium, so stay tuned.
At The Agency Los Cabos, our team is committed to helping you find the perfect property, and we will be with you throughout the entire process.
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