Company: LGIH
Filing Date: 2025-02-26
Form Type: 10-K
Source: 0001580670-25-000016
Chunk: 564

Company: LGI Homes, Inc.
Filing Date: 2025-02-26
Form: 10-K
Item: Item 7
Chunk 564
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 be used in the calculation and reporting of land development and home construction costs.

Impairment of Real Estate Inventories

Real estate inventory is evaluated for indicators of impairment by each community during each reporting period. In conducting our review for indicators of impairment on a community level, we evaluate, among other things, the margins on homes that have been closed, communities with slow moving inventory, projected margins on future home sales over the life of the community, and the estimated fair value of the land. We pay particular attention to communities in which inventory is moving at a slower than anticipated absorption pace and communities whose average sales prices and/or margins are trending downward and are anticipated to continue to trend downward. Due largely to the relatively short development and construction periods for our communities and our growth, we have experienced limited circumstances during 2024, 2023 or 2022 that are indicators of impairment. Our future sales and margins may be impacted by our inability to realize continued growth, increased cost associated with holding and developing land, local economic factors, pressure on home sales prices, increased carrying costs, and insufficient access to labor and materials at reasonable costs. For individual communities with indicators of impairment, we perform additional analysis to estimate the community’s undiscounted future cash flows. If the estimated undiscounted future cash flows are greater than the carrying value of the asset, no impairment adjustment is required. If the undiscounted cash flows are less than the asset’s carrying value, the asset is impaired and is written down to its fair value. We estimate the fair value of communities using a discounted cash flow model; changes to the expected cash flows may lead to changes in the outcome of our impairment analysis.

We purchase both finished lots and land to be developed.  Generally, the life cycle of a community ranges from two to five years.  For projects we develop, the period between the acquisition of a raw piece of land and completion of the development of that land generally ranges from two to three years. During the life of a project, a constructed home is used as 

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the community information center and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate, and whether the property was purchased as raw land or finished lots.  Sustained changes in the life cycle of a community, which is an indicator used for impairment, may negatively impact our results of operations.

Impairment of Land and Land Under Development

For raw land, land under development and completed lots that our management anticipates will be utilized for future