Note 4. Homesites Under Option Contracts

The Company's option contracts with its counterparties are accounted for under ASC 842 because the Company transfers elements of control of the homesites to the counterparties during the option contract period. Revenues earned from homesites under option contracts are recorded as option fee revenues in the Company's condensed consolidated statements of operations.

The option agreements grant counterparties the exclusive right to acquire homesites owned by the Company at predetermined prices and takedown schedules. Although the Company retains legal title to the land during the option agreement term, the counterparties obtain substantive rights to direct the planning, use, and development of the homesites. The Company has therefore determined that these arrangements are accounted for under ASC 842. Because the Company considers the counterparties’ purchase options to be reasonably certain of exercise, the option contracts are accounted for as sales‑type leases under ASC 842.

The carrying value of homesites under option contracts is recorded based on the Company's capital funded under the option contracts, which includes the land acquisition costs, qualifying development costs and other directly attributable costs incurred on the underlying land. When a counterparty completes a takedown and homesites are transferred in accordance with the option contract, the Company derecognizes the related carrying amount from the condensed consolidated balance sheets.

The Company did not recognize selling profit or loss upon commencement of its option contracts because the carrying amount of the underlying homesites approximated consideration allocated to those assets in accordance with ASC 842. For the three months ended June 30, 2026 and 2025, the Company recognized total option fee income related to these option contracts of $195.4 million and $141.1 million, respectively. For the six months ended June 30, 2026 and 2025, the Company recognized total option fee income related to these option contracts of $380.7 million and $221.2 million, respectively. The total amount recognized as option fee revenues represents the effective interest component associated with its net investment in sales-type leases. The aggregate homesites under option contract was $9.6 billion as of June 30, 2026 as compared to $8.9 billion as of December 31, 2025.

Because the Company's option contracts are accounted for as sales-type leases, the resulting asset, representing the Company's right to receive future takedown payments and option fees, is considered a contractual right to receive cash. Therefore, the Company evaluates expected credit losses for homesites subject to option contracts in accordance with ASC 326. Expected credit losses are estimated using a WARM methodology, which applies an annual loss rate to the estimated remaining life of the related contract balance and is adjusted for expected cash flows and relevant qualitative factors. Qualitative considerations include the counterparties' consistent payment performance, the absence of delinquencies or defaults since inception, non-refundable option deposits and contractual termination fees, and cross-collateralization features across certain counterparty arrangements. The Company also considers the credit quality of its most significant counterparties. After considering these factors, the Company determined that the risk of loss was immaterial as of June 30, 2026.

Counterparties pay monthly option fees, which may vary over time due to additional capital invested in development, reimbursable costs, takedown timing and volume, or other contractual adjustments. These changes are recognized prospectively through an updated effective interest yield. The Company recognizes option fee revenues from these arrangements using an effective interest yield over the term of the option contract, which represents the effective interest component on sales-type leases.