I recently received an inquiry from a client about a certain spec house (which I’ve written about before, to its agent’s fury, so I’ll leave the exact identification out this time). The builder has $3 million invested in the land, at least $3.5 million in construction costs and probably $4, and has priced it well above that total in order to recoup his expenses and nab a profit. It’s never going to happen.
At the top of the market, this place might have sold for $6.5 million, in my opinion. If I’m right, the builder was underwater before he even completed the project. But now it’s worth far less and there are nearby comps to prove that. Plus, I’ve shown my client some spec houses whose builders have given up the dream and are willing to walk away with millions of dollars in losses, just to be able to walk away (the curse of personal guarantees). How are you going to get a client back on the farm after he’s seen Paris? Even if it turns out that my client doesn’t want the spec houses he’s seen, he likes their price, and I doubt he’ll be willing to pay an extra $3-4 million for essentially the same house with a layout more to his liking. He’ll probably decide to wait the builder out, and I wouldn’t blame him.
This is not a positive development for any spec builder without the resources to keep his unsold houses going for a couple more years.