Company: LGIH
Filing Date: 2025-02-26
Form Type: 10-K
Source: 0001580670-25-000016
Chunk: 245

Company: LGI Homes, Inc.
Filing Date: 2025-02-26
Form: 10-K
Item: Item 1
Chunk 245
---
 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 

48

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 homebuilding activities or to be sold as finished lots to individuals, the recoverability of assets is measured by comparing the carrying amount of the assets to future undiscounted cash flows expected to be generated by the assets based on home or lot sales, consistent with the evaluation of operating communities discussed above. 

Warranty Reserves

We have provided homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements. Estimated future direct warranty costs are assessed monthly on a consistent basis as part of our policy and accrued and charged to cost of sales in connection with our home sales.

The primary assumption to record amounts accrued for our warranty liability is based upon a trailing 120 month period of historical warranty cost experience on a per house basis established based on (i) trends in historical warranty payment levels, (ii) the historical range of amounts paid per house, (iii) any warranty expenditures not considered to be normal and recurring, and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built, the geographic areas in