Custom Home or Production Home: Which is best for you?

Can you save money later by building a custom home now?

Small wooden house next to stacks of coins. Photo courtesy of GettyImages.

When building a new home, it's important to take both costs and lifestyle into consideration.

So, you’ve been out looking at production homes, walking the models, tweaking floor plans in your head, but you can’t find exactly what you want. You wonder whether it might be cheaper in the long run to buy a lot and build a custom home. That way, you could get exactly what you want, maybe even design a home that you could live in forever. You may be able to get the home of your dreams. Maybe there’s a way to economize so that the custom home doesn’t cost you any more in the long run?

Few professionals believe that’s possible, unless you plan to live in the home a long, long time. “In my experience custom homes will be more expensive than production homes,” says Jeff Berkus, a Colorado architect who designs both custom and production homes. “The only time this may not be the case: If the production home is so poorly built that the cost of ownership over time makes for a more expensive effort...but this would typically be over a longer period of time than any single owner would experience.”

So if a custom home is not cheaper, is it still better than a production home? Short answer: It depends on your wants and needs. Here’s what to consider when deciding whether to build a new custom or production home:

Balancing Costs vs. Lifestyle Fit

The attraction of custom homes is that they can be personalized in a way that isn’t possible on a production home, no matter how many options the builder offers. Few production builders will ask where you prefer to put on your shoes in the morning, what you bring home from the places where you travel, or whether you share the bathroom with a spouse in the morning. But a custom architect might. She or he might also optimize the ergonomics of closets, raise the dishwasher off the floor so that it’s easier on your back to load dishes, or lower counter heights so that kids can help prepare food. Most production builders thoroughly standardize design and construction.

For that reason, many people who wind up buying a production home are forced to compromise, says Mark Jones, a Florida-based architect with LRK who designs both production and custom homes. They may not really like the arrangement of a flex bedroom, the location of dining spaces, or the size of a utility room. “It may not be conducive to the way they live, but they accept it because there is no other choice, or it’s at a price they can afford or the location they want to live in,” he says. “Theoretically in a custom home you could reduce unusable square footage.”

However, even if you cut wasted space, it would be difficult to bring the budget for a custom home below one purchased off the shelf. One big reason is that the largest production builders have tremendous purchasing clout. They can negotiate impossible deals on lumber, lighting, drywall, and other building materials, prices that smaller custom builders who only build a handful of homes a year can’t touch.

Reconciling Design Services

If you go the custom home route, you may also need to buy the services of an architect, and maybe even an interior designer. Custom architects charge for their services in a variety of ways. One of the more prevalent is to charge 10 to 12 percent of construction costs. That means it would cost $60,000 to design a modest, $500,000 custom home. The fee would typically only cover basic design services, though it’s all negotiable. If you wanted additional drawings for, say, cabinets, and electrical systems, it would cost more. The same is true if you wanted the architect to handle material bidding with suppliers and contract administration with your builder.

Design fees – for both architecture and interior design -- are built in to the cost of a production home and spread over hundreds of homes. A good production builder uses computerized systems, policies, and safeguards to further reduce construction costs. “I’ve never seen a moderately priced custom-builder approach the cost or other efficiencies of a good production builder,” says Jim Lemming, a custom builder in Houston who previously worked for production builders. Lemming is quick to add that those competences don’t necessarily result in a better house. “I’ve also never seen a production builder, even a luxury production builder, come close to our architectural or finish programs.”

To learn more about designing your dream custom home, read: “How to Build the Custom Home of Your Dreams

Zeroing in on Lot Savings

There are ways to save money on a custom home, but they take legwork, more work than you may be willing to perform.

The first place to look, and the biggest potential pot of savings, is the lot. You may be able to get a deal on raw land compared to the retail price that a production builder effectively charges. But buying land requires a ton of due diligence – the phrase “buyer beware” was effectively invented to describe land purchases. You can buy peace of mind if the plot is already served by utilities and approved for construction, though you’ll pay extra for that. Otherwise, you’ll need to spend serious time making inquiries at the local planning department to determine requirements for building setbacks, impervious drainage, and square footage. The information may not be easy to find.

Production builders, or their developer partners, typically gather all the approvals before they sell you a home on a lot. They excel at unearthing the information, since that’s what they do for a living. They may have even worked with the local building department before. They can also spread the cost of gaining approvals, running utilities, and grading land over the entire subdivision. Even so, they may effectively charge you more for a lot than you’d pay if you did the work yourself. It comes down to how much work you want to put in versus how easy you’d like this step in the home buying journey to be.

Acing Solar Orientation

Most production homes are plotted in a subdivision grid based to maximize developer profit. Homes may not be sited to produce long-term energy savings and aesthetic satisfaction for the homeowner. The optimal situation – easier to do when designing a custom home -- is to orient key rooms with windows to the south so that they soak up the sun during cold winter months when the sun is low in the sky. You may be able to store thermal energy in a tile or concrete floor that’s radiated back into the house at night. Then you can employ overhangs and awnings to shield the home from the sun during the summer when the sun is high in the sky.

Natural ventilation is another important strategy to consider. Cooling bills can be dramatically lowered by creating a wind tunnel through house, with cool air entering through low windows, circulated through stairwells, and exhausted through clerestory windows on upper stories. The key is determining the direction of prevailing winds. Another great, often overlooked strategy is to use reflective surfaces near windows that bounce light into the interiors. That way you don’t have to turn on electric lights as often. Lighting accounts for 9 percent of home energy use, according to the Department of Energy.

Production builders achieve efficiencies by selling pre-designed homes that come out of a corporate design department. That way, when they know how much and what kind of material is needed to build the home, they can purchase material and labor in bulk quantities. The design, however, may overlook the opportunity to wake up in the morning looking out at a wonderful grove of trees in the backyard. It may ignore a downward sloping backyard that presents an ideal opportunity to create a well-lit walk-out basement. It may not do enough in your estimation to limit views of neighboring homes.

Tackling Utility Costs

Production homes rarely exceed building codes. Production builders, like retailers, want to advertise the lowest possible price to draw people out to see their models. Many new-home shoppers, before they come out, do an easy cost per square foot calculation to see which builders provide the best value. However, when they visit the models, they may find them decked out with options that cost extra. Options often add 20 to 35 percent to the final cost of production home.

The production builder’s emphasis on reducing first costs may result in a home that’s more expensive in the long run operate. They may not sweat energy details during the construction, making sure that there’s little opportunity for heat or air conditioning to escape through gaps in the walls. Or they may install inexpensive windows that don’t do a good job blocking heat transfer. Dan Jenkins, a Florida housing designer who markets energy-efficient home plans, believes a custom home will be cheaper in the long-term to operate.

Production homes are built by independent subcontractors whose work is monitored by supervisors who may oversee dozens of homes at a time. Custom builders who build fewer homes each year can theoretically do a better job monitoring construction. This really matters when it comes to energy efficiency. All builders need to continually check for gaps in the walls, joints left unsealed. They need to make sure that when holes are put in the exterior, they are sealed. The most careful builders use infra-red imaging to see whether heat is escaping through the building envelope.

Want to know what to ask homebuilders when you are picking the perfect one to build your new home? Read: “15 Questions to Ask When Selecting a Home Builder

Reaping Energy Rewards

Every ounce of care during construction produces pounds of energy savings down the road. The best custom builders, working with a conscientious architect, can produce a house that consumes half the energy of the typical production home. With an investment in photovoltaic panels, you can build a home that produces all the energy that it needs, a so-called net-zero house. This is much more feasible to do today because the cost of PV panels is half what it was five years ago. If you are really aggressive, you could build a net-positive house that produces more power than it needs and sells the excess to a utility. In California, all new homes must be net-positive by 2020.

Most production homes don’t exceed the requirements of local building codes, one big reason they are less expensive. Unfortunately, local building codes are slow to keep up with advances in technology, new engineering approaches, and climate change. Another opportunity today is to design and build a resilient home that may be able to withstand the next tornado or hurricane. For about $3,000 -- the cost of a granite countertop -- a custom builder could strap roofs to walls with beefed-up connectors, anchor walls to foundations with bolts, and brace exterior walls with plywood or oriented strand board. For added insurance against high winds, some builders install tempered-glass windows that can withstand the impact of flying debris and hurricane-resistant garage doors.

To learn more about building an energy-efficient custom home, read: “How to Build an Eco-Friendly Custom Home

Getting a Flexible Floor Plan

Production builders often market homes to a specific buyer cohort – growing families in particular. Their designs may not pay enough attention to details that would produce a home flexible enough to live in forever. You could include an office or den, for example, that could morph into a bedroom should you have an unexpected child or a parent came to live with you. The key to making that work is having a bathroom in close proximity. One excellent idea is to design a powder bath that could take space from a closet or another room should it need to become a full bath. Something else to consider is designing your home with wider hallways and doorways so that it would be easier to navigate in a walker or wheelchair.

Many custom architects believe they can produce homes that employ 25 percent less square footage than production homes. One way they do this by using modeling to visualize interior spaces in three dimensions. They make the most of vertical space – tall cabinets in kitchens, bookshelves along upstairs hallways, and reading nooks under windows – that makes rooms appear larger. They find ways to visually connect spaces within open plans. They orient rooms to make the most of window and landscaped views, techniques that make homes appear larger. They use translucent or sliding doors that draw light or space from other rooms.

It may not be possible to build a custom home for less than a production home, but there are many ways to economize in custom home design. One is to consider that some rooms cost more to build than others. “Kitchens and bathrooms are what drive up the cost of a house,” says Jenkins. “They are the most expensive rooms to build. If all you wanted was one kitchen and two and half bathrooms, you may be able to build a larger custom home for less per square foot.“

Making the Right Decision for You

Custom homes aren’t for everyone. In fact, they account for only one out of every five new homes built each year, according to estimates by the National Association of Home Builders. That number includes speculative homes that a custom builder might design and offer for sale. Customs are more common in populous, wealthy regions such as the Northeast and Mid-Atlantic and less common in the Mountain and Pacific Regions, where production builders dominate.

However, a custom home, like a finely tailored suit, may be the perfect for your current family and generations to come. It may prove to be the best investment you ever made, especially if it’s flexible enough to morph as your living situation changes – your mother comes to live with you, your son comes home after college, or you decide to rent out a room for income.

The bottom line is that custom homes can produce bountiful, long-term satisfaction to which it’s tough to attach a monetary value.
Boyce Thompson is the author of three books – Anatomy of a Great Home, The New New Home, and the forthcoming, Designing for Disaster. For 17 years, he served as the editorial director of Builder magazine.

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