REVENUE RECOGNITION

The Company adopted ASC 606 as of January 1, 2018 using the modified retrospective method which requires the cumulative effect of the initial application of the new standard, if any, to be reflected as an adjustment to the opening balance of retained earnings as of January 1, 2018. There was no cumulative effect of the initial application of ASC 606 on the Company's consolidated financial statements.

Contracts with Customers

The Company derives revenues from two primary sources: the closing and delivery of homes through our builder operations segment and the sale of lots through our land development segment to homebuilders. All of our revenue is from contracts with customers.

Disaggregation of Revenue

The following reflects the disaggregation of revenue by primary geographic market, type of customer, product type, and timing of revenue recognition (in thousands):



	Three Months Ended March 31, 2018				Three Months Ended March 31, 2017
	Builder Operations		Land Development		Builder Operations		Land Development
Primary Geographic Market
Texas homebuilding	$	71,548	$	—	$	50,670	$	—
Georgia homebuilding	48,818		—		42,727		—
Texas land development	—		3,999		—		5,753
Georgia land development	—		3,900		—		187
Total revenues	$	120,366	$	7,899	$	93,397	$	5,940

Type of Customer
Homebuyers	$	120,366	$	—	$	93,397	$	—
Homebuilders	—		7,899		—		5,940
Total revenues	$	120,366	$	7,899	$	93,397	$	5,940

Product Type
Residential units	$	120,366	$	—	$	93,397	$	—
Land and lots	—		7,899		—		5,940
Total revenues	$	120,366	$	7,899	$	93,397	$	5,940

Timing of Revenue Recognition
Transferred at a point in time	$	120,366	$	7,899	$	93,397	$	5,940
Total revenues	$	120,366	$	7,899	$	93,397	$	5,940

Contract Balances

The Company requires homebuyers to submit a deposit for home purchases and for third-party builders to submit a deposit in connection with land sale or lot option contracts. The deposits serve as a guarantee for performance under homebuilding and land sale or development contracts. Cash received as customer deposits is reflected as customer and builder deposits on the condensed consolidated balance sheets.

Contract balances included in customer and builder deposits on the condensed consolidated balance sheets are as follows (in thousands):



	March 31, 2018		December 31, 2017		March 31, 2017		December 31, 2016
Customer and builder deposits	$	22,698	$	21,447	$	17,067	$	14,088

The difference between the opening and closing balances of customer and builder deposits results from the timing difference between the customer’s payment of a deposit and the Company’s performance, impacted slightly by terminations of contracts. The amount of homebuyer deposits on residential units held as of the beginning of the period and recognized as revenue during the three months ended March 31, 2018 and 2017 was $3.2 million and $2.3 million, respectively. The amount of homebuilder deposits on land and lots held as of the beginning of the period and recognized as revenue during the three months ended March 31, 2018 and 2017 was $0.2 million and $0.3 million, respectively.

Performance Obligations

The Company’s contracts with homebuyers contain a single performance obligation. The performance obligation is satisfied when the home is completed and legal title has been transferred to the buyer. The Company does not have any variable consideration associated with home sales transactions.

Lot option contracts contain multiple performance obligations. The performance obligations are satisfied as the lots are closed and legal title has been transferred to the builder. For lot option contracts, individual performance obligations are accounted for separately. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price basis. Certain lot option contracts require escalations in lot price over the option period. Any escalator is not collectible until the lot closing occurs. While we recognize lot escalators as variable consideration within the transaction price, we do not recognize escalator revenue until a builder closes on a lot subject to an escalator as the escalator relates to general inflation and holding costs.

Occasionally, the Company sells developed and undeveloped land parcels. If the land parcel is developed prior to the sale of the land, the revenue is recognized at closing since we deliver a single performance obligation in the form of a developed parcel. We also recognize revenue at closing on undeveloped land parcel sales as there are no other obligations beyond delivering the undeveloped land.

Homebuyers are not obligated to pay for a home until the closing and delivery of the home; the selling price of a home is based on the contract price adjusted for any change orders, which are considered modifications of the contract price.

Our homebuilder customers are not obligated to pay for developed lots prior to control of the lots and any associated improvements being transferred to them. The term of our lot option contracts is generally based upon the number of lots being purchased and the agreed upon lot takedown schedule, which can be in excess of one year. Lots cannot be taken down until development is substantially complete. There is no significant financing component related to our third-party lot sales.

The Company does not sell warranties outside of the customary workmanship warranties provided on homes or developed lots at the time of sale. The warranties offered to homebuyers and to customers of developed lots are short term, with the exception of ten-year warranties on structural concerns for homes. As these are assurance-type warranties, there is no separate performance obligation related to warranties provided.

There was no revenue recognized during the three months ended March 31, 2018 and 2017 from performance obligations satisfied in prior periods.

Transaction Price Allocated to the Remaining Performance Obligations

The aggregate amount of transaction price allocated to the remaining performance obligations on our land sale and lot option contracts is $107.4 million. The Company will recognize the remaining revenue when the lots are taken down, or upon closing for the sale of a land parcel, which is expected to occur as follows (in thousands):



	Total
Remainder of 2018	$	35,773
2019	47,500
2020	19,567
2021	4,536
Total	$	107,376

The lot takedowns are contingent upon a number of factors, including customer needs, the number of lots being purchased, receipt of acceptance of the plat by the municipality, weather-related delays, and agreed-upon lot takedown schedules.

Our contracts with homebuyers have a duration of less than one year. As such, the Company uses the practical expedient as allowed under ASC 606 and has not disclosed the transaction price allocated to remaining performance obligations as of the end of the reporting period.

Significant Judgments and Estimates

There are no significant judgments involved in the recognition of completed home sales. The performance obligation of delivering a completed home is satisfied upon the sale closing when title transfers to the homebuyer.

There are no significant judgments involved in the recognition of land sales or developed lots sales. The performance obligation of delivering land or developed lots is satisfied upon the closing of the sale when title transfers to the homebuilder.

Contract Costs

In connection with the adoption of ASC 606, the Company adopted ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, with respect to capitalization and amortization of incremental costs of obtaining a contract. The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects to recover those costs.

The Company pays sales commissions to employees and/or outside realtors related to individual home sales which are expensed as incurred at the time of closing. Commissions on the sale of land parcels are also expensed as incurred upon closing.

The Company also pays quarterly builder incentives to employees which are based on the time it takes to build individual homes. The builder incentives do not represent incremental costs that would require capitalization as we would incur these costs whether or not we sold the home. As such, we will continue to recognize builder incentives as salary expense at the time they are paid.

Costs incurred for model homes, advertising, and sales salaries do not qualify for capitalization under ASC 340-40 as they are not incremental costs of obtaining a contract. As such, we expense these costs to selling, general and administrative expense and salary expense as incurred. Costs incurred related to model home furnishings are capitalized and included in property and equipment, net.