Florida Broker Practice Exam

Which type of residential construction involves building "on speculation" without a buyer?

1. Custom homes

2. Tract homes

3. Speculative homes

4. Contract homes

The correct answer is: Speculative homes

Speculative homes refer to a type of residential construction where a builder constructs a house without having a specific buyer lined up beforehand. The builder anticipates selling the home once it is completed, meaning they take on the financial risk in hopes that there will be demand for such properties. This method allows builders to showcase their work and attract potential buyers who may be looking for a new home without waiting for the construction to commence. Custom homes, on the other hand, are tailored to the specific preferences of a buyer who is involved in the design and construction process from the beginning. Tract homes are generally part of a larger development where multiple homes are built using similar designs and plans; these homes are not typically built strictly on speculation, as there is often a market demand established beforehand. Contract homes are built based on a contract or agreement with a buyer, ensuring that the builder has guaranteed work. Understanding these distinctions is essential for anyone involved in residential real estate, as it helps clarify the different strategies builders use to meet market needs.