Asking small builder for "Spec" home??

13 years ago

Here is the situation: we live in a very desirable city where real estate prices are super high and lots to build on are extremely hard to find. We obtained some "insider info" on a tear-down kind of a house in our dream neighborhood. The problem is -- we do not currently have 20% to put down for a construction loan, although we do qualify for special "physician" financing because my husband is doctor, which means, we can get 90 to 100% financing on an end loan. He just started his job and our financial situation will be extremely different from where it is now in as little as a few months. We normally would not care to rush into this sort of a thing, but we're growing out of our current house, and it takes anywhere between 8 to 12 months to build a home by the builder we like. I know that it's not uncommon for large scale builders to take deposits from potential buyers and build spec homes, but I'm wondering about smaller "boutique" kind of builders? So, we'd basically be asking him to buy this house for us (it's not listed on the market, it would be a private sale, prob around 300K), tear it down, and build a spec home on the lot. The builder has built homes for our friends and this is a pretty small community where lots of people know each other, so before asking him to do something like that, I wanted to get opinions/advice...is that too much to ask or pretty common in the building world?? Thanks for any and all information!

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Comments (5)

worthy
13 years ago
Say I'm a spec builder--which I am from time to time--and you ask me to buy a $300,000 lot, build a house and when it's done you'll pay me. After all, you're a high-earning professional good for it etc, etc. I have seen this movie before!

I might consider it. As long as you have at least a $150,000 downpayment and/or other equity, such as a mortgageable interest in your current home, and I think I'll have a profitable sale down the road should your "best laid schemes Gang aft agley."

This post was edited by worthy on Tue, Aug 13, 13 at 0:06
worthy
13 years ago
Say I'm a spec builder--which I am from time to time--and you ask me to buy a $300,000 lot, build a house and when it's done you'll pay me. After all, you're a high-earning professional good for it etc, etc. I have seen this movie before!

I might consider it. As long as you have at least a $150,000 downpayment and/or other equity, such as a mortgageable interest in your current home, and I think I'll have a profitable sale down the road should your purchase fall through.
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jamannor
13 years ago
I can almost guarantee you they won't. The problem lies in your financing. To recoup the 300k house they build for you they must be able to appraise not only for the price of the house but also the money they are losing to buy the land/demolition home. If the house doesn't appraise they will have to lower the price so that you guys can actually get the loan because a bank won't just give you money for equity that you don't have(or maybe I should rephrase it as they shouldn't). It's just highly unlikely.

Good luck.
dadereni
13 years ago
Who is the seller? Perhaps they'd be willing to hold the note, if the terms are favorable to them.

If it's not it great shape but could be rescued, a "203k" loan could help you do that with a low down payment.
User
13 years ago
This does happen. (I'm sure not often, but it is possible.) My best friend did the exact same thing with her builder. The builder took on all the risk and sold the house at the end. Best friend was friends with the realtor who represents the builder, so the builder trusted them. That certainly helped.

I think It will also depend on if the builder has the money on hand/credit to take on that much loan debt and whether the home will appraise for the cost to build. In my area, homes can and do appraise around the cost to build and property isn't very high.