The Financial 411 on Buying a Tract House: When It’s a Good Deal and When It Doesn’t Make Sense

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Many homebuyers are drawn to the idea of purchasing new construction over an existing home. There’s something undeniably appealing about owning a pristine, never-been-lived-in dwelling where you can bank on being the first one to use the shower.

But new construction is known for costing more than existing homes, especially if you’re opting for a custom build. In January, the National Association of Realtors® reported the median sales price of existing homes was $359,000, while new homes averaged $427,500, according to data from the Federal Reserve Bank of St. Louis.

So what’s a buyer to do if they dream of owning a newly built yet comparatively affordable house? Enter: the tract home.

Tract housing is a type of residential development, featuring similar homes built on single parcels of land. Also known as planned communities, these developments typically crop up in the suburbs and can feature anywhere from a few dozen houses to thousands of homes in the community.

For homebuyers on a budget, a tract house is attractive because it’s an inexpensive alternative to a custom home. But its resale value isn’t always stellar. So when does buying a tract home make the most financial sense? Let’s look at the pros and cons.

Pro: Lower purchase price

Builders of tract homes have the design and construction process down to a science—and that’s what makes them inexpensive. By offering buyers only a handful of models to choose from, builders can construct houses quickly. Plus, building hundreds of houses at once means they can buy materials in bulk.

“Builders of tract homes get huge discounts on their materials because they’re buying in bulk,” says Alex Capozzolo, co-founder of SD House Guys in San Diego. “This allows them to offer these homes at a lower cost than other types of housing. It is a great option for those on a budget who are looking to buy their first home.”

Con: Poor resale value

For many, buying a home isn’t just about having a place to stay—it’s also about leveraging your investment when you sell. But selling a tract home above—or perhaps even at—the price you paid could be very challenging.

When you buy a tract home, you’re buying a property that looks nearly identical to your neighbors’ homes. Therefore, your home’s value will always be similar to the value of your neighbors’ homes.

When it comes time to sell, it can be hard to make your home stand out. Plus, if new homes are being built in your community at the same time you’re trying to sell, it can be even harder to find a buyer who is willing to pay top dollar for your home when there are brand-new options down the road.

Pro: Community amenities

Tract homes are typically found in planned communities, many of which offer a plethora of amenities and benefits, as well as homeowner guidelines, which can ultimately help maintain the quality of your neighborhood—and the value of your investment.

“In planned communities, homeowners associations have rules about how a home and yard must be maintained,” says Dan Rivers, a real estate investor in Charleston, SC. “This means that the value of your home won’t decrease due to any deteriorating conditions from your neighbor’s home. Also, many communities provide lawn and snow removal services.”

Among the biggest draws of planned communities are the neighborhood amenities like parks, playgrounds, fitness centers, and pools. These features can be attractive to young families and active seniors alike.

Con: Low-priced materials = low quality

You know the saying: You get what you paid for. In order to be able to sell the homes at a low price, builders often choose low-end materials for cabinets, countertops, and flooring.

“The quality of a build for an individual home is largely dependent on the materials chosen,” says Brian Greul, inspector for GreenLight Inspectors. “Do not assume that because it is new construction it is good construction.”

Gruel says he has seen “shocking defects” in some of the tract homes he’s inspected. Tract homes are designed to be built quickly, and a hasty construction job is more prone to shoddy workmanship.

“Speed is often a priority when tract homes are built,” says Josh Wilson, a licensed real estate agent and co-founder of That Florida Life. “This, plus the use of inexpensive materials, can mean a lower quality overall when compared with custom-built homes.”

Pro: Quick move-in time

If you know what town you want to live in and need to relocate in a rush, a tract home might be the way to go.

“Tract homes can be quickly constructed and ready for move-in at short notice,” Capozzolo says.

Data from the U.S. Census Bureau estimates that it takes about 7.2 months to build a privately owned residential building. That number falls to 6.5 months for build-for-sale homes (including tract houses) and rises to 12.1 months for owner-built houses.

Con: Limited customization

Tract housing, by design, won’t suit everyone.

“Tract homes are built according to standard design, which means your ability to customize and add creative touches will be very limited,” says Cam Dowski, founder of We Buy Houses Chicago. “This can be a deterrent for many homebuyers and investors who hope to add value to the home.”

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