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What is a custom home and how is it different than a “tract” or “production” home? What’s the difference in terms of cost?

Typically, a custom home is an organic process that begins with an owner and a dream.  There are many different places to start, but usually it would be with the future homeowner with a home site in mind, and an architect who begins to plan the home based on that particular buyers direction (size, bedroom count, etc.).  Somewhere along the line, a builder such as Brandywine would be contracted to come in and begin the process of permitting, specifying materials and eventually construction.

A production home, on the other hand, will be designed with a more mass market appeal and will have more typical materials and finishes.

As far as cost goes, that depends greatly on spec level and what a particular buyer is trying to achieve.

Are these usually new homes replacing tear downs? What percentage are homes on new lots? How many developments allow/require buyers to build their own custom homes?

There are a few areas in Orange County that offer new communities with lots for sale that are intended specifically for custom homes.  Crystal Cove in Newport Beach and Covenant Hills in Ladera Ranch are two good examples.  There are also many older communities that have seen a new wave of construction over the last several years such as Harbor View Homes area of Newport Beach.  It is not uncommon to drive down a street at Harbor View where half of the homes are the original 1970’s, 2,500 sq. ft. average homes, and the remainder are sprawling Tuscan or Cape Cod estate homes built in the 2000’s.