8. Warranties

Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $0.9 million and $1.2 million during the three and nine months ended September 30, 2017, respectively, which is included as a reduction to cost of homes sales revenues on our consolidated statement of operations.

The following table summarizes the changes in our warranty accrual (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Beginning balance	$	3,057	$	2,754	$	2,479	$	2,622
Warranty reserve assumed in business combination		6,202		—		6,202		—
Warranty expense provisions		1,245		686		2,827		2,078
Payments		(710)		(554)		(1,458)		(1,194)
Warranty adjustment		(944)		(291)		(1,200)		(911)
Ending balance	$	8,850	$	2,595	$	8,850	$	2,595