DEVELOPER-BUILDER
Development and building requires financing for land acquisition, land use approval and subdividing,
construction, marketing, and carrying of inventoried properties financially until they are sold. A developer-
builder often finds it desirable to set up specialized subsidiary companies with separate financing needs: one
company to hold title and subdivide the property; another to conduct building operations; and another for sales
and marketing.
Subdividing and building is a cyclical business. High productivity and profit may be followed by a period of
depressed sales and losses. The cost of land, unpredictability of land use approvals, credit availability, interest
rates, inflation, and changing property values are all important factors.
Developers must find ways to build affordable homes despite increases in:
• demands from local agencies as conditions for approval of projects;
• wages;
• cost of building supplies;
• energy conservation and other building code requirements;
• aggressive competition;
• insurance costs;
• some cost-saving options often considered are:
• precut or prefabricated materials;
• use of fewer skilled craftsmen through standardization of jobs;
• complete on-site assembly of prefabricated units; and,
• reduction of land cost per home through increased density (e.g., planned development/cluster home and
condominium projects).
Even though production efficiency has increased, total construction costs have risen with inflation and the
demands of the consumer for more amenities.
Furthermore, a potential home builder needs to be aware of the risk that defective construction can lead to legal
claims from purchasers. This liability can endure for up to and possibly beyond ten years after the home is
completed and has been an increasing critical issue over the last two decades.