Toll Brothers tightens land underwriting amid slowing home sales

Toll Brothers is adjusting its land acquisition strategy by tightening underwriting standards using internal rate of return (IRR) and margin screens, according to HousingWire.

The company is focusing on 'main and main' sites, prioritizing the best locations as home sales slow and margins decline.

This approach involves a more granular, real-time evaluation of each land deal to ensure it meets the challenges of a slowing housing market.

Toll Brothers began reassessing its underwriting criteria a few years ago, moving away from aggressive land purchases made during stronger market conditions, especially in high-growth Sun Belt areas.

The land committee has increased its threshold for deals, emphasizing stricter evaluation based on gross margin and IRR to stay ahead of market downturns rather than react to them.

Executives highlighted that selectivity, trusted relationships with sellers, and deal structuring are key elements of their current strategy to navigate the challenging environment.