What is an "Inventory Home"?

By Ruth Lorenzen

This real estate term is usually used in the context of new construction or pre-construction homes.

Builders and developers like to have contracts on the new homes long before they're actually built. This allows the new homeowner to pick out a few options or colors before the house is built, and also this lets the builder know that someone has committed to buy his house and he can go ahead and build it.

When a buyer cannot purchase the home they planned on (maybe their financing doesn't come through, or they change their mind, or any number of reasons why a buyer may not, in the end, buy the home they contracted to buy) the builder or developer is left with another home to sell. This is called an "inventory home". This home may already be built, so the options and color choices the prior buyer made are already in place in the home. If the home is almost built, then the builder is probably committed to the prior choices made on this home because he may have already ordered the products (carpeting, kitchen cabinets, paint, etc.) or started to install them.

It's called an "inventory home" because it is now in the "inventory" of the builder or developer. Note that the builder or developer never wants "inventory"; they want all their to-be-built homes to be sold immediately to their intended buyers and go straight into the buyer's name. They don't want to pay taxes on the newly built home, or continue to pay interest on some construction loan. The want to sell the house.

For this reason, builders and developers will often offer "inventory homes" at prices lower prices than usual. Sometimes this makes for a great deal for the new buyer.

So next time you see someone offering "inventory homes", know that it might just be a good deal on some new construction.