Definition of "Developer’s profit"

James Rice real estate agent

Written by

James Riceelite badge icon

Weichert Realtors Hallmark Properties

The term developer’s profit is the actual profit generated by a developer’s project after the costs of the development have been covered. This profit can come from the sale of the development in the case of residential developments, i.e., each property sold generates an income out of which the developer subtracts the cost of the property and comes out with the end profit. In other words, the developer’s profit is the sum of money a developer earns in a development project after all costs have been paid. This is the offset to the investment risk and time and labor the developer has invested in the outcome of the development. 

How does the Developer’s Profit Work?

While sometimes it can be called entrepreneurial profit, the developer’s profit, besides being the actual profit earned by the developer once the real estate project is sold, it is also the profit they anticipate to gain after the real estate transaction. However, in comparison to the entrepreneurial profit, the developer’s profit is based, as mentioned above, on the time, expertise, and energy of the developer, the person responsible for overseeing the overall development. 

During the cost approach calculations, the measure of the project’s profit includes both the entrepreneurial profit and the developer’s profit. Usually, the developer’s profit can range between 5 to 15% of the project’s total cost. This profit is generated from the difference in cost of materials, overhead expenses, and labor compared to the end project’s value. Still, it’s important to note that the developer’s profit can be affected during certain economic conditions that impact the market. For example, if the cost of the materials ends up being much higher than initially evaluated or if miscalculations occurred in the project’s planning stages.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

In commerce and business, margin as a general term is defined as by the difference between the amount of money spent on a product and the selling price of it. The margin usually appears as ...

The clear, open and active occupancy of real estate. For example, notorious possession is one of the tests for adverse possession. ...

The definition of abatement is a reduction of penalties or a tax deduction for individuals or businesses. It can often be accessed upon an overpayment of taxes, if the company or individual ...

How many days, months, or years are required before a new building has the desired occupancy ratio. The occupancy rate influences the amount financial institutions are willing to lend. ...

The Ellwood method based on a multiplier of mortgage-equity to determine the value of income-producing property. ...

The total destruction, razing, tearing down, breaking into pieces or pulverizing of a structure on a building site. Demolition usually occurs when clearing a building site either as ...

A form of life or disability insurance where a mortgagor insures a mortgage in the event of death or disability. The principal covered by mortgage insurance declines as the mortgage is ...

(1) Subunit integral to a larger unit. (Usually associated with furniture). (2) Permanent fixture or appliance which is not intended to be portable and cannot easily be removed. A home has ...

Borrower's right to redeem his property by immediately paying off the loan balance and any related costs. ...

Popular Real Estate Questions