Pricing lots three years out on a 62-lot rolling takedown

3 percent flat is insuring the builder for free. Tie the escalation to a published index rather than a chosen number, ENR CCI or whatever the state DOT uses for asphalt and pipe, with a floor of 2 and a cap around 8 so neither side can claim it broke the deal. Separately, carve the offsites out of the lot price completely. The lift station, the offsite water main, any impact fee increase the city passes after the development agreement is signed. Those belong in a reimbursement schedule at actual cost with backup invoices. Builders will argue but they price offsites the same way when they're on the other side of the table.

A fixed price with a 3% escalator is a bet that your remaining hard costs rise slower than 3% a year, and on a two year sellout that bet is mostly about pipe, asphalt, and whether the city changes its impact fees mid-project. Escalation tied to a published construction cost index with a floor and a cap is the more common structure on rolling options, with offsite work passed through at actual cost against invoices. Whether the index is enforceable the way you draft it depends on the contract language, so that clause is worth real attorney time rather than a template.

The sequencing in your numbers matters more than the escalator, though. $55k a lot on 62 lots is about $3.4M of improvements, and if the trunk sewer and the entrance road sit in phase 1 you could be $2M in before the first closing. At 8 lots a quarter you're roughly eight quarters to sell out, and two years of carry on $2M at land development rates is a meaningful bite out of a $105k lot. Run the same deal at 5 lots a quarter and see what happens to your return, because a slow quarter is the builder's option, not yours.

Who the builder actually is changes the credit question. An option signed by a single purpose LLC with no parent guarantee is a free look. Ask for the parent entity on the contract or escalate the non-refundable deposit each phase, and apply deposits to the final takedown so walking costs them money.

Check your preliminary plat expiration too. Many jurisdictions expire preliminary approval in two to five years unless you record phases on a schedule, which means the builder's pace can end up becoming your entitlement problem. Confirm the exact term with the planning department in writing.

Naive question from the analysis side: if the builder wants all 62 lots, why not just buy the whole thing at closing and take the price break? Is the rolling takedown purely about keeping the land off their balance sheet?

@luis_carrera yes, and the internal hurdle punishes owned dirt harder than optioned dirt. That's the whole game. @nicole_adeyemi on the cost side, remember a bid set is only a snapshot. Most site contractors hold unit prices 30 to 60 days, and the wet utility crews are the tightest. If the grading and paving sub can't hold the number for the phase 2 mobilization, the escalator argument is happening whether or not it's in the contract. Worth asking the engineer to break the estimate into phase 1 and phase 2 line by line and see how much of phase 2 is actually locked by anything.

On small buildings, the tenant who can leave any month sets the rent. Sounds like the same principle here, the party holding the option sets the price.

One thing that always lands on the developer after the fact: who maintains the common areas, the detention pond and the entrance landscaping between recording and the point the HOA has enough dues to function. On a two year sellout that gap can be 18 months of mowing, pond inspections, and an irrigation bill in the developer's name. Budget it as a real line, and write the turnover trigger into the CCRs by percentage of lots conveyed rather than a date, because a slow takedown will blow through a date.

Take a version of this shape run through a model. Holding everything else flat and stretching takedown from 8 lots a quarter to 5 moves the deal several hundred basis points, and almost all of it is carry plus the fixed HOA and property tax drag @tonyv88 mentions. Which means the negotiation priority isn't the escalator at all, it's a minimum quarterly takedown with a make-whole payment if the builder misses it. Builders will give escalation language before they'll give a hard minimum, which tells you which one costs them more.