Inventory

3 Months Ended

Mar. 31, 2020

Major components of inventory were as follows ($000’s omitted):



	March 31, 2020		December 31, 2019
Homes under construction	$	3,276,279	$	2,899,016
Land under development	4,132,273		4,347,107
Raw land	449,112		434,491
	$	7,857,664	$	7,680,614

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized substantially all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):



	Three Months Ended
	March 31,
	2020			2019
Interest in inventory, beginning of period	$	210,383		$	227,495
Interest capitalized	39,913			42,381
Interest expensed	(36,871		)	(34,563		)
Interest in inventory, end of period	$	213,425		$	235,313

Land option agreements

We enter into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings. Option deposits and pre-acquisition costs (such as environmental testing, surveys, engineering, and entitlement costs) are capitalized if the costs are directly identifiable with the land under option, the costs would be capitalized if we owned the land, and acquisition of the property is probable. Such costs are reflected in other assets and are reclassified to inventory upon taking title to the land. We write off deposits and pre-acquisition costs when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the timing of required land purchases, the availability and best use of necessary incremental capital, and other factors. We record any such write-offs of deposits and pre-acquisition costs within other expense, net.

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either March 31, 2020 or December 31, 2019 because we determined that we were not the VIEs' primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements.

The following provides a summary of our interests in land option agreements as of March 31, 2020 and December 31, 2019 ($000’s omitted):



	March 31, 2020				December 31, 2019
	Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price
Land options with VIEs	$	130,537	$	1,523,601	$	123,775	$	1,466,585
Other land options	173,045		1,807,502		175,662		1,755,377
	$	303,582	$	3,331,103	$	299,437	$	3,221,962

Land-related charges

We recorded the following land-related charges ($000's omitted):



		Three Months Ended
		March 31, 2020
	Statement of Operations Classification	2020		2019
Land impairments	Home sale cost of revenues	$	5,386	$	—
Net realizable value ("NRV") adjustments - land held for sale	Land sale and other cost of revenues	11		62
Write-offs of deposits and pre-acquisition costs	Other expense, net	4,332		2,917
		$	9,729	$	2,979

As explained in Note 1, we periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. NRV adjustments occur when circumstances indicate that the carrying value of land held for sale will not be fully recovered.

Our evaluations for land impairments, NRV adjustments, and write-offs of deposits and pre-acquisition costs are based on our best estimates of the future cash flows of our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.