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

Standard precut lumber sizes for lumber industry needs. The typical sizes are 2 to 5 inches thick by 5 to 12 inches wide. ...

A mortgage requiring a substantial down payment. It is usually only available to those having good credit, and has fixed monthly payments for the life of the loan. It usually has a 30 year ...

(1) The exposed trim and molding surrounding a door or window. (2) Woodwork which encases a pipe or structural member. (3) Method of creating a form for the pouring of concrete. ...

An open surface constructed on top of a flat roof. Normally, a railing is constructed on the sides of a deck roof. See also deck. ...

Received immediately when an investment is made or contract signed. For example, a real estate limited partnership may require that an investor pay a 3% sale fee at the time of initial ...

The income earned on an investment, typically stated as a percentage of the market price ...

Same as term government rectangular survey: Way in which the U.S. government uses to subdivide public land. Land is designated as either a base line (East-West) or principal meridian line ...

Physical decline in a property's value caused from use, old age, and environmental factors. ...

Sometimes, a perplexing legal term (a genuine headscratcher) emerges when buying or selling a property. You know you should know it, but its precise definition escapes you. Today's special ...

Popular Real Estate Questions