Homebuilder profits, why brand beats volume for Toll Brothers

Toll Brothers tripled its net income over five years while Lennar grew revenue by roughly the same amount but earned less. Both homebuilders expanded revenue about 50% from fiscal 2020 through fiscal 2025, but their profit trajectories diverged sharply.

Toll Brothers increased signed contracts by 5% year over year last quarter. Lennar's orders declined 9%, and KB Home's fell 12%. Toll's average delivered home price in fiscal 2025 was about $960,000, compared with Lennar's at about $391,000.

Toll reported a 25.6% gross margin on home sales, or 27.3% using its adjusted measure. Lennar reported 17.7%. The margin gap reflects different customer bases and strategies. About 70% of Toll's buyers in fiscal 2025 were move-up or move-down households with existing home equity. Roughly 26% paid in cash.

Toll's CEO, Douglas Yearley, said the company's mortgage rate buydown take rate was "very low" because its buyers "do not need a lower rate to qualify for a mortgage." That shifts how buyers make decisions. A first-time buyer financing most of a $391,000 home depends on the monthly payment. A buyer with equity is choosing a home, not qualifying for one.

Lennar reported it was running about 14% in incentives and price adjustments at the end of fiscal 2025 and about 12% last quarter. Toll's average incentive in fiscal 2025 was about 8%. Repeated incentives become the business model rather than a tactic to manage demand swings.

In Q4 of fiscal 2025, Toll buyers spent an average of about $206,000 per home on design studio selections, structural options, and lot premiums. That's roughly 24% above the base price. Lennar buyers receive incentives to sign. Toll's buyers spend money to personalize.

Founded in 1967, Toll calls itself the nation's leading builder of luxury homes. Fortune named Toll the No. 1 home builder on its World's Most Admired Companies list in 2026, the ninth time it earned that ranking. Toll's adjusted gross margin fell from 27.5% to 25.6% in the most recent quarter, and its earnings declined as luxury buyers felt uncertainty too.