Spec vs Build-to-Order: Toll Brothers’ Future Homebuilding Strategy
Explore how Toll Brothers’ balanced spec and build-to-order model reshapes luxury homebuilding, blending speed, customization, and market agility to meet evolving buyer demands and secure profitability.
Key Takeaways
- Toll Brothers now builds about 50% of homes on spec, up from 10-15%.
- Spec homes offer speed and efficiency without sacrificing luxury appeal.
- Build-to-order homes remain crucial for premium margins, sometimes topping 30%.
- A 40-60% spec mix is more sustainable than historic 90% build-to-order.
- Toll Brothers’ backlog averages $1.16 million, with luxury ASPs above $1 million.
Toll Brothers, a titan in luxury homebuilding, is rewriting the rules of how dream homes come to life. Once anchored in build-to-order homes, the company now embraces a bold 50-50 split with spec homes—those ready-to-move-in beauties that blend speed with style. This shift responds to a new generation of buyers craving both convenience and customization.
With spec homes rising from a modest 10-15% to half of their portfolio, Toll Brothers balances efficiency with the bespoke touches that define luxury living. Their strategy isn’t just about building houses; it’s about crafting experiences that adapt to market twists and buyer needs.
In this article, we’ll unpack how Toll Brothers’ spec versus build-to-order model shapes its future, why this hybrid approach matters, and what it means for the luxury housing market at large.
Balancing Spec and Build-to-Order
Imagine walking into a home that’s ready for you today, yet still feels like it was made just for you. That’s the magic Toll Brothers is crafting by balancing spec and build-to-order homes. Spec homes, once a small slice of their portfolio at 10-15%, now make up about half of their builds. This isn’t a shift toward cookie-cutter houses; it’s a strategic dance between speed and customization.
Spec homes cater to buyers who need to move fast—think millennials juggling careers and families or professionals relocating on short notice. Yet, Toll Brothers spices these homes with curated design packages, allowing personalization even before the keys change hands. It’s like ordering a tailored suit off the rack but still choosing the fabric and buttons.
Meanwhile, build-to-order homes remain the crown jewels—fully personalized, often on premium lots, and commanding margins topping 30%. This dual approach lets Toll Brothers pivot with market demands, offering quick move-ins without sacrificing the bespoke luxury that defines their brand.
Meeting Shifting Buyer Demands
The luxury homebuyer of today isn’t the same as yesterday. Toll Brothers recognizes this evolution, especially among affluent millennials and move-up buyers who crave both speed and style. The old model—waiting months or years for a fully customized home—is giving way to a desire for immediacy without compromise.
Spec homes answer this call by slashing construction cycle times and offering near-immediate occupancy. But these aren’t bland, off-the-shelf models. Toll Brothers’ spec homes come with design studios that generated over $1 billion in sales, averaging $203,000 in upgrades per home in Q4 alone. Buyers get the best of both worlds: fast delivery and a personal touch.
This shift also reflects broader market realities—affordability challenges and fluctuating mortgage rates mean buyers want options. Toll Brothers’ hybrid model meets these needs head-on, expanding their reach while preserving the premium experience.
Financial Efficiency and Market Agility
Behind the scenes, Toll Brothers’ spec homes are more than just a convenience—they’re a financial masterstroke. By building homes without a committed buyer, the company improves capital efficiency and maximizes land use. This agility means they can respond swiftly to market demand shifts, a crucial advantage in today’s volatile housing landscape.
In Q3 fiscal 2025, Toll Brothers had 3,200 spec homes in process and 1,800 permits ready to go. This inventory flexibility allows them to ride out interest rate fluctuations and capture demand rebounds quickly. Meanwhile, build-to-order homes, often tied to premium lots and upgrades, continue to drive strong margins.
This balanced portfolio is a hedge against uncertainty. Rather than relying on the old 90% build-to-order model, Toll Brothers embraces a 40-60% spec mix that offers resilience and steady profitability.
Comparing Industry Peers’ Approaches
Toll Brothers isn’t alone in navigating the spec versus build-to-order debate. Lennar Corporation leans heavily on spec homes, focusing on quick delivery and standardized designs to capture volume demand, especially in entry-level and move-up markets. D.R. Horton, the nation’s largest builder by volume, also emphasizes spec production but mixes in higher-end offerings.
Toll Brothers, however, stakes its claim in the luxury niche, where curated spec homes complement traditional build-to-order projects. This contrast highlights how builders tailor strategies to their market segments. While Lennar and D.R. Horton chase scale and speed, Toll Brothers blends efficiency with premium customization.
This nuanced positioning allows Toll Brothers to maintain brand prestige while adapting to shifting buyer preferences—a balancing act that could define luxury homebuilding’s next chapter.
Outlook: Toll Brothers’ Market Position
Toll Brothers’ stock performance tells a story of confidence. Shares have surged nearly 30% in the past three months, outpacing industry and broader market indices. Yet, analysts have trimmed 2025 EPS estimates slightly to $13.86, reflecting cautious optimism amid modest revenue growth projections of 0.2%.
With luxury average selling prices above $1 million and a backlog priced at $1.16 million, Toll Brothers is well-positioned to leverage its hybrid model. The company’s Zacks Rank #3 (Hold) suggests steady footing but also room for strategic refinement.
Ultimately, Toll Brothers’ future isn’t about choosing between spec or build-to-order—it’s about mastering both. This duality equips them to navigate affordability challenges, shifting buyer tastes, and market volatility with grace and grit.
Long Story Short
Toll Brothers’ journey from a predominantly build-to-order builder to a hybrid spec powerhouse signals a savvy embrace of market realities. By marrying quick-delivery homes with personalized builds, they capture a wider audience—from millennials seeking speed to buyers craving bespoke luxury. This balance isn’t just operational finesse; it’s a financial lifeline. Spec homes boost capital efficiency and agility, while build-to-order projects preserve high margins and brand prestige. Together, they form a resilient blueprint for navigating fluctuating mortgage rates and shifting buyer preferences. For homebuyers and investors alike, Toll Brothers’ model offers a fresh perspective: the future of luxury homebuilding isn’t an either-or choice but a dynamic blend. It’s a story of adaptability, where speed meets style, and flexibility fuels growth.