Green Brick Partners, Inc. (GRBK) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For business overview and developments during the year ended December 31, 2021, refer to Part I, Item 1 of this Annual Report on Form 10-K.

Overview and Outlook

Our key financial and operating metrics are home deliveries, home closings revenue, average sales price of homes delivered, and net new home orders, which refers to sales contracts executed reduced by the number of sales contracts canceled during the relevant period. Our results for each key financial and operating metric, as compared to the year ended December 31, 2020, are provided below:

The United States has been impacted by the coronavirus (“COVID-19”) pandemic. However, throughout the pandemic, we have continued to build, close and sell homes in our markets. The overwhelming expansion of our revenues is attributable to the strong performance of our new Trophy brand division, and the impact of macroeconomic factors such as low interest rates, an influx of millennia first-time home buyers and demand for suburban homes from apartment dwellers in response to COVID-19. The significant increase in new home demand has, in turn, led to increased demand for labor and the raw materials, products and appliances for new homes. Due to the increased demand, we have and expect to continue to experience increases in cost and decreased availability of skilled labor as well as increases, shortages and significant extensions to our lead time for the delivery of key materials and inputs.

2021 Developments

From October 2020 to October 2021, homes in the DFW and Atlanta markets appreciated by 24.6% and 21.4%, respectively, compared to 18.4% average appreciation for 20 major U.S. metropolitan areas (Source: S&P Dow Jones Indices & CoreLogic, October 31, 2021). Among the 12 largest metropolitan areas in the country, the Dallas area ranked third and the Atlanta area ranked seventh in annual rate of job growth from November 2020 to November 2021 (Source: US Bureau of Labor Statistics, November 2021). We believe that we operate in two of the most desirable housing markets in the nation and that increasing demand and supply constraints in our target markets create favorable conditions for our future growth.

Results of Operations

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Residential Units Revenue and New Homes Delivered

The table below represents residential units revenue and new homes delivered for the years ended December 31, 2021 and December 31, 2020 (dollars in thousands):

The $379.5 million increase in residential units revenue was driven by the 10.1% increase in the average sales price of homes delivered for the year ended December 31, 2021 and the 28.4% increase in the number of homes delivered. The 10.1%

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increase in the average sales price of homes delivered for the year ended December 31, 2021 was attributable to overall price increases driven by high demand and low supply of inventory.

New Home Orders and Backlog

The table below represents new home orders and backlog related to our builder operations segments, excluding mechanic’s liens contracts (dollars in thousands):

Net new home orders decreased by 1.2% over the prior year period and our absorption rate per average active selling community increased 9.3% year over year. The absorption rate per average active selling community per quarter of 8.2 homes during the year ended December 31, 2021, was a direct result of pro-active metering of home sales by withholding homes from sale and by limiting sales per community to better align the absorption rate of sales with the ability to deliver new homes. Because of rising input costs and strong sales demand, we prefer to increase our level of spec inventory than sell as many homes yet to be built. The absorption rate per average active selling community per quarter of 8.2 homes during the year ended December 31, 2021, exceed the 5.6 net new home orders during the year ended December 31, 2019 by 46.4%.

Backlog refers to homes under sales contracts that have not yet closed at the end of the relevant period, and absorption rate refers to the rate at which net new home orders are contracted per average active selling community during the relevant period. Upon a cancellation, the escrow deposit may be returned to the prospective purchaser. Accordingly, backlog may not be indicative of our future revenue.

Our cancellation rate, which refers to sales contracts canceled divided by sales contracts executed during the relevant period, was 7.7% for the year ended December 31, 2021, compared to 13.0% for the year ended December 31, 2020. Sales contracts relating to homes in backlog may be canceled by the prospective purchaser for a number of reasons, such as the prospective purchaser’s inability to obtain suitable mortgage financing. Upon a cancellation, the escrow deposit may be returned to the prospective purchaser. Management believes a cancellation rate in the range of 15% to 20% is representative of an industry average cancellation rate. Our cancellation rate is on the lower end of the industry average, which we believe is due to favorable market conditions through December 31, 2021.

The $183.0 million increase in value of backlog was due to the 25.2% increase in the average sales price of backlog and the 1.2% increase in the number of homes in backlog. The increase of the average sales price of homes in backlog was the result of price increases driven by the high demand and low supply of inventory.

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Residential Units Gross Margin

The table below represents the components of residential units gross margin (dollars in thousands):

Cost of residential units for the year ended December 31, 2021 increased by $258.5 million, or 36.6%, compared to the year ended December 31, 2020, primarily due to the 28.4% increase in the number of new homes delivered in addition to increasing levels of cost input prices.

Residential units gross margin for the year ended December 31, 2021 increased to 26.4%, compared to 24.1% for the year ended December 31, 2020, primarily because of overall price increases that outpaced the levels of cost input price increases.

Land and Lots Revenue

The table below represents lots closed and land and lots revenue (dollars in thousands):

The 45.3% decrease in lots revenue was driven by the 13.9% decrease in the number of lots closed and a higher proportion of lots developed for internal use. The average lot price decreased by 36.5% due to a higher number of entry level lots sold. Land revenue represents land acquired that also included parcels zoned for retail and multi-family properties, as well as the sale of 50% interest in communities to other public homebuilders at zero profit where we enter into co-development agreements to split certain larger lot-count communities.

Selling, General and Administrative Expenses

The table below represents the components of selling, general and administrative expense (dollars in thousands):

The 1.9% decrease of total selling, general and administrative expense as a percentage of revenue was primarily driven by the leverage of higher revenues without a corresponding increase in the level of overhead costs.

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Builder Operations

Selling, general and administrative expense as a percentage of revenue for builder operations decreased by 1.5% due to an increase in builder operations revenues without a corresponding increase in the level of overhead costs. Builder operations expenditures include salary expenses, sales commissions, and community costs such as advertising and marketing expenses, rent, professional fees, and non-capitalized property taxes.

Land Development

The 1.9% decrease in selling, general and administrative expense as a percentage of revenue for land development was primarily attributable to an increase in land development segment revenues.

Corporate, Other and Unallocated

Selling, general and administrative expense for the corporate, other and unallocated non-operating segment for the year ended December 31, 2021 was income of $2.1 million, compared to expense of $2.3 million for the year ended December 31, 2020. The change is primarily due to an increase in capitalized overhead adjustments that are not allocated to builder operations and land development segments.

Equity in Income of Unconsolidated Entities

Equity in income of unconsolidated entities increased to $19.7 million, or 18.4%, for the year ended December 31, 2021, compared to $16.7 million for the year ended December 31, 2020, primarily due to an increase in earnings from GB Challenger. See Note 5 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of Green Brick’s share in net earnings by unconsolidated entity.

Other Income, Net

Other income, net, increased to $9.5 million for the year ended December 31, 2021, compared to $4.1 million for the year ended December 31, 2020. The change is primarily due to an increase in title closing and settlement services of $3.5 million arising from higher volume of closings during the year ended December 31, 2021 and to $1.5 million of allowances for option deposits and pre-acquisition costs caused by COVID-19 pandemic considerations recorded during the year ended December 31, 2020.

Income Tax Expense

Income tax expense increased to $52.6 million for the year ended December 31, 2021 from $25.0 million for the year ended December 31, 2020. The increase was partially due to higher taxable income. Also, during the year ended December 31, 2020, we recognized favorable federal energy tax credits from building energy-efficient homes in prior tax years.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

For discussion and analysis of our results of operations for the year ended December 31, 2020 as well as for comparison to our results of operations for the year ended December 31, 2019, refer to Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020.

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Lots Owned and Controlled

The following table presents the lots we owned or controlled, including lot option contracts, as of December 31, 2021 and December 31, 2020. Owned lots are those for which we hold title, while controlled lots are lots past feasibility studies for which we do not hold title but have the contractual right to acquire title.

(1)Total lots excludes lots with homes under construction.

The following table presents additional information on the lots we controlled as of December 31, 2021 and December 31, 2020.

The following table presents additional information on the lots we owned as of December 31, 2021 and December 31, 2020.

Liquidity and Capital Resources Overview

As of December 31, 2021 and December 31, 2020, we had $78.7 million and $19.5 million of unrestricted cash, respectively. Our historical cash management strategy includes redeploying net cash from the sale of home inventory to acquire and develop land and lots that represent opportunities to generate desired margins and using cash to make additional investments in business acquisitions, joint ventures, or other strategic activities.

Our principal uses of capital for the year ended December 31, 2021 were home construction, land purchases, land development, operating expenses, and payment of routine liabilities. We used funds generated by operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our builder operations segments and acquiring desirable land positions in order to maintain a strong balance sheet and remain poised for continued growth.

Cash flows for each of our communities depend on the community’s stage in the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land

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acquisitions, entitlements and other approvals, roads, utilities, general landscaping and other amenities. These costs are a component of our inventory and are not recognized in our statement of income until a home closes. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflows associated with home construction and land development previously occurred.

Our debt to total capitalization ratio, which is calculated as the sum of borrowings on lines of credit, the senior unsecured notes and notes payable, net of debt issuance costs, divided by the total capitalization, which equals the sum of Green Brick Partners, Inc. stockholders’ equity and total debt, was approximately 27.7% as of December 31, 2021. In addition, as of December 31, 2021, our net debt to total capitalization ratio, which is a non-GAAP financial measure, remained low at 22.7%. It is our intent to prudently employ leverage to continue to invest in our land acquisition, development and homebuilding businesses. We target a debt to total capitalization ratio of approximately 30% to 35%, which we expect will provide us with significant additional growth capital.

Reconciliation of a Non-GAAP Financial Measure

In this Annual Report on Form 10-K, we utilize a financial measure of net debt to total capitalization ratio that is a non-GAAP financial measure as defined by the Securities and Exchange Commission. Net debt to total capitalization is calculated as the total debt less cash and cash equivalents, divided by the sum of total Green Brick Partners, Inc. stockholders’ equity and total debt less cash and cash equivalents. We present this measure because we believe it is useful to management and investors in evaluating our financing structure. We also believe this measure facilitates the comparison of our financing structure with other companies in our industry. Because this measure is not calculated in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The closest GAAP financial measure to the net debt to total capitalization ratio is the debt to total capitalization ratio. The following table represents a reconciliation of the net debt to total capitalization ratio to the closest GAAP financial measure as of December 31, 2021.

Key Sources of Liquidity

Our key sources of liquidity were funds generated by operations and provided by lines of credit and issuance of senior unsecured notes and preferred stock during the year ended December 31, 2021.

Debt Instruments

Borrowings on lines of credit outstanding, net of debt issuance costs, as of December 31, 2021 and December 31, 2020 consisted of the following (in thousands):

Secured Revolving Credit Facility – As of December 31, 2021, we had $2.0 million outstanding under our Secured Revolving Credit Facility, down from $7.0 million as of December 31, 2020. Borrowings under the Secured Revolving Credit Facility bear interest at a floating rate per annum equal to the rate announced by Bank of America, N.A. as its “Prime Rate” less 0.25%, subject to a minimum rate. As of December 31, 2021, the interest rate on outstanding borrowings under the secured revolving credit facility was 4.00% per annum, which was equal to the minimum rate as of that date. On February 9, 2022, the

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Company entered into the Eighth Amendment to this credit agreement to extend its maturity date to May 1, 2025 and to reduce the minimum interest rate from 4.00% to 3.15%. All other material terms of the credit agreement, as amended, remained unchanged.

Unsecured Revolving Credit Facility – As of December 31, 2021, we had no amounts outstanding under our Unsecured Revolving Credit facility, down from $101.0 million as of December 31, 2020. The borrowings on the Unsecured Revolving Credit Facility bear interest at a floating rate equal to either (a) for base rate advances, the highest of (1) the lender’s base rate, (2) the federal funds rate plus 0.5% and (3) the one-month LIBOR plus 1.0%, in each case plus 1.5%; or (b) in the case of Eurodollar rate advances, the reserve adjusted LIBOR plus 2.5%. As amended, the aggregate principal amount of the revolving credit commitments under the Credit Agreement is $300.0 million through December 14, 2024. In addition, the Unsecured Revolving Credit Agreement, as amended, permits us, without the consent of the other lenders, to request that one or more lenders increase their revolving credit commitments to provide an aggregate of $325.0 million of revolving credit commitments subject to compliance with customary conditions set forth in the Credit Agreement including compliance, on a pro forma basis, with the financial covenants set forth therein.

Senior Unsecured Notes - As of December 31, 2021, we had four series of senior unsecured notes outstanding which were each issued pursuant to a note purchase agreement. The aggregate amount of senior unsecured notes outstanding was $335.4 million as of December 31, 2021, up from $111.1 million as of December 31, 2020 due to the issuance of the 2028 and 2029 notes as discussed below.

•In August 2019, we issued $75 million of senior unsecured notes (the “2026 Notes”). Interest accrues at an annual rate of 4.0% and is payable quarterly. Principal on the 2026 Notes is required to be paid in increments of $12.5 million on August 8, 2024 and $12.5 million on August 8, 2025 with a final principal payment of $50.0 million on August 8, 2026.

•In August 2020, we issued $37.5 million of senior unsecured notes (the “2027 Notes”). Interest accrues at an annual rate of 3.35% and is payable quarterly. Principal on the 2027 Notes is due on August 26, 2027.

•In February 2021, we issued $125.0 million of senior unsecured notes (the “2028 Notes”). Interest accrues at an annual rate of 3.25% and is payable quarterly. Principal on the 2028 Notes is due in increments of $25.0 million annually on February 25 in each of 2024, 2025, 2026, 2027, and 2028.

•In December 2021, we issued $100.0 million of senior unsecured notes (the “2029 Notes”). Interest accrues at an annual rate of 3.25% and is payable quarterly. A required principal prepayment of $30.0 million is due on December 28, 2028. The remaining unpaid principal balance is due on December 28, 2029.

Optional prepayment is allowed with payment of a “make-whole” premium which fluctuates depending on market interest rates. Interest is payable quarterly in arrears.

Our debt instruments require us to maintain specific financial covenants, each of which we were in compliance with as of December 31, 2021. Specifically, under the most restrictive covenants, we are required to maintain (1) a minimum interest coverage (consolidated EBITDA to interest incurred) of no less than 2.0 to 1.0 and, as of December 31, 2021, our interest coverage on a last 12 months’ basis was 19.4 to 1.0, (2) a Consolidated Tangible Net Worth of no less than approximately $533.6 million and, as of December 31, 2021, we had $874.6 million and (3) maximum debt to total capitalization rolling average ratio of no more than 40.0% and, as of December 31, 2021, we had a rolling average ratio of 30.7%.

As of December 31, 2021, we believe that our cash on hand, capacity available under our lines of credit and cash flows from operations for the next twelve months will be sufficient to service our outstanding debt during the next twelve months. For more detailed information on our lines of credit, refer to Note 7 to the Consolidated Financial Statements located in Part II, Item 8 of this Annual Report on Form 10-K.

Preferred Equity Issuances

On December 22, 2021, we issued 2,000,000 Depositary Shares, each representing 1/1000 of a share of our 5.75% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) for $50.0 million. We received net proceeds of $47.7 million and incurred stock issuance costs of approximately $2.3 million that reduced the amount of equity on our consolidated balance sheet.

Holders of Series A Preferred Stock, when and as authorized by our Board, are entitled to cumulative cash dividends at the rate of 5.75% of the $25,000.00 ($25.00 per Depositary Share) liquidation preference per year (equivalent to 1,437.50 per share per year or $1.4375 per Depositary Share per year). Dividends are payable quarterly in arrears, on or about the 15th of March, June, September and December, beginning on or about March 15, 2022. On and after December 23, 2026, the shares of Series

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A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $25,000.00 per share of Series A Preferred Stock ($25.00 per Depositary Share), plus an amount equal to any accrued and unpaid dividends. Furthermore, upon a change of control (as defined in the Certificate of Designation), we will have a special option to redeem the Series A Preferred Stock at $25,000.00 per share of Series A Preferred Stock ($25.00 per Depositary Share), plus an amount per share equal to any accrued and unpaid dividends on such shares. In addition, upon change of control, the shareholders will have the option to convert their Series A Preferred stock into shares of Common Stock as specified on the Certificate of Designation. The Series A Preferred Stock ranks, as to dividend rights and rights upon our liquidation, dissolution or winding up senior to all classes or series of our common stock. Holders of the Series A Preferred Stock generally have no voting rights, except for limited voting rights, including if we fail to pay dividends on the Series A Preferred Stock for six or more quarterly periods (whether or not consecutive).

Registration Statements

In December 2020, we filed with the SEC a shelf registration statement on Form S-3 registering up to $500 million of securities, including shares of our common stock, preferred stock or debt securities either separately or represented by warrants, or depositary shares as well as units that include any of these securities. Under the rules governing shelf registration statements, we will file a prospectus supplement and advise the SEC of the amount and type of securities each time we issue securities under this registration statement.

Cash Flows

The following summarizes our primary sources and uses of cash for the year ended December 31, 2021 as compared to the year ended December 31, 2020:

•Operating activities. Net cash used in operating activities for the year ended December 31, 2021 was $92.4 million, compared to a $35.1 million source of cash from operating activities during the year ended December 31, 2020. The net cash outflows for the year ended December 31, 2021 were primarily driven by an increase in inventory of $358.3 million, partially offset by $201.0 million of cash generated from business operations, the deferral of expense payments through the increase in accrued expenses and accounts payable of $20.9 million and $21.2 million, respectively, and an increase in customer builder deposits of $26.5 million.

•Investing activities. Net cash used in investing activities for the year ended December 31, 2021 decreased to $2.0 million compared to $13.3 million for the year ended December 31, 2020. The decrease in cash outflows was primarily due to a $9.0 million investment in joint venture GBTM Sendera during the year ended December 31, 2020.

•Financing activities. Net cash provided by financing activities for the year ended December 31, 2021 was $154.3 million, compared to $25.9 million cash used during the year ended December 31, 2020. The cash inflows for the year ended December 31, 2021 were primarily from borrowings from senior unsecured notes of $225.0 million and from net proceeds from the issuance of preferred stock of $47.7 million, partially offset by the net repayment of lines of credit of $106.0 million.

For discussion and analysis our cash flows for the year ended December 31, 2020 as well as for comparison to our cash flows for the year ended December 31, 2019, refer to Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

Land and Lot Option Contracts

In the ordinary course of business, we enter into land purchase contracts with third-party developers in order to procure lots for the construction of our homes in the future. We are subject to customary obligations associated with such contracts. These purchase contracts typically require an earnest money deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements.

We also utilize option contracts with lot sellers as a method of acquiring lots in staged takedowns, which are the schedules that dictate when lots must be purchased to help manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Lot option contracts generally require us to pay a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices which typically include escalations in lot prices over time.

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Our utilization of lot option contracts is dependent on, among other things, the availability of land sellers willing to enter into these arrangements, the availability of capital to finance the development of optioned lots, general housing market conditions and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting the earnest money deposit with no further financial responsibility to the land seller. During the three months ended March 31, 2020, management determined to increase the allowance for certain option contracts due to the impact of the COVID-19 pandemic on the homebuilding industry and projected future demand for homes in certain markets and/or locations. However, management subsequently reassessed the market situation based on new information available and reversed such allowances for earnest money deposits and pre-acquisition costs related to option contracts in the subsequent quarter.

As of December 31, 2021, we had earnest money deposits of $27.3 million at risk associated with contracts to purchase 6,246 lots past feasibility studies with an aggregate purchase price of approximately $323.1 million.

Letters of Credit and Performance Bonds

Refer to Note 17 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K for details of letters of credit and performance bonds outstanding.

Guarantee

Refer to Note 5 in the accompanying Notes to the consolidated financial statements included in this Annual Report on Form 10-K for details of our guarantee in relation to our joint venture with EJB River Holdings, LLC (“EJB River Holdings”).

Critical Accounting Policies

The preparation of financial statements in accordance with United States generally accepted accounting principles (“GAAP”) requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting period. Management bases estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. Actual results may differ from estimates under different assumptions or conditions. Management believes that the following accounting area is most critical to the portrayal of our financial condition and results of operations and requires the most subjective or complex judgments.

Impairment of Inventory

We value inventory at cost unless the carrying value is determined to be not recoverable in which case the affected inventory is written down to fair value. In accordance with Accounting Standards Codification 360, Property, Plant, and Equipment (“ASC 360”), we evaluate our inventory for indicators of impairment by individual community and development during each reporting period.

For our builder operations segments, during each reporting period, community gross margins on closed homes, average margins of homes within backlog, and community outlook factors are reviewed by management. In the event that this review suggests higher potential for losses at a specific community, we monitor such communities by adding them to its “watchlist” communities, and, when an impairment indicator is present, further analysis is performed.

For our land development segment, we perform a quarterly review for indicators of impairment for each project which involves comparing anticipated lot sale revenues to projected costs (i.e. lot gross margins). For lots designated for our builders, we review land for indicators of impairment on a consolidated level, looking at overall projected home gross margins. In determining the allocation of costs to a particular land parcel, we rely on project budgets which are based on a variety of assumptions, including assumptions about development schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including delays, changes in costs that have not been committed, unforeseen issues encountered during project development that fall outside the scope of existing contracts, or items that ultimately cost more or less than the budgeted amount. We apply procedures to maintain best estimates in our budgets, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred and utilizing the most recent information available to estimate costs.

For each real estate asset that has an indicator of impairment, we analyze whether the estimated remaining undiscounted future cash flows are more or less than the asset’s carrying value. The estimated cash flows are determined by projecting the

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remaining revenue from closings based on the contractual lot takedowns remaining or historical and projected home sales or delivery absorptions for homebuilding operations and then comparing such projections to the remaining projected expenditures for development or home construction. Remaining projected expenditures are based on the most current pricing/bids received from subcontractors for current phases or homes under development. For future phases of land development, management uses its judgment to project potential cost increases. When projecting revenue, management does not assume improvement in market conditions.

If the estimated undiscounted cash flows are less than the asset’s carrying value, the asset is deemed impaired and will be written down to fair value less associated costs to sell. These impairment evaluations require us to make estimates and assumptions regarding future conditions, including the timing and amounts of development costs and sales prices of real estate assets, to determine if expected future cash flows will be sufficient to recover the asset’s carrying value.

Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets. These discounted cash flows are impacted by expected risk based on estimated land development activities, construction and delivery timelines, market risk of price erosion, uncertainty of development or construction cost increases, and other risks specific to the asset or market conditions where the asset is located when the assessment is made. These factors are specific to each community and may vary among communities.

When estimating cash flows of a community, management makes various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, the level of time-sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model home maintenance costs and advertising costs). Due to uncertainties in the estimation process, the volatility in demand for new housing and the long life cycle of many communities, actual results could differ significantly from such estimates.

Refer to Note 1 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further description of our significant accounting policies.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for recent accounting pronouncements.