Dream Finders Homes, Inc.DFH
Dream Finders Homes, Inc. Fair Value Disclosure
Fair Value Disclosures
Fair value represents the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined using a fair value hierarchy established by GAAP, based on the inputs used to measure fair value. Level 1 inputs are unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable and significant to the fair value. The Company applies the fair value hierarchy to certain assets and liabilities remeasured or disclosed at fair value on a recurring basis, including mortgage loans held for sale, derivative assets and liabilities, AFS debt securities, senior unsecured notes, net, and contingent consideration in connection with certain acquisitions.
The fair value of mortgage loans held for sale is based on either investor commitments or quoted secondary-market prices. Derivative assets and liabilities are associated with mandatory and best effort IRLC and MBS used to hedge interest rate risk on certain of the IRLC. The fair values for IRLC are derived from market pricing for instruments with similar characteristics or forward sale commitment prices, as well as certain unobservable inputs such as estimated costs to originate the loans and the probability that the mortgage loan will fund within the terms of the IRLC, known as the pull-through rate. The Company estimates the fair value of forward sales of MBS contracts based on quoted MBS prices. As of December 31, 2025 and 2024, the total notional amount of mortgage loans locked and approved through IRLC totaled approximately $59.0 million and $24.1 million, respectively, and carried weighted-average interest rates of approximately 5.2% and 6.2%, respectively. As of December 31, 2025, the total notional amount of MBS sales totaled approximately $48.8 million and carried a weighted-average interest rate of approximately 4.2%. There were no outstanding MBS as of December 31, 2024. Management believes that carrying the mortgage loans held for sale and the derivative instruments used to economically hedge them at fair value enhances financial reporting by reducing volatility in reported earnings.
The fair value of AFS debt securities is principally a function of current market conditions and is primarily determined based on quoted prices in markets that are not active or model inputs that are observable or unobservable. The fair values of the Senior Notes are based on recent trades or quoted market prices for debt of similar terms, including maturity, to achieve comparable yields.
The fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, customer deposits and mortgage warehouse facilities, approximate their carrying amounts due to the short-term nature of these instruments. The fair value of the Credit Agreement approximates its carrying amount since it is subject to short-term floating interest rates that reflect current market rates. Fair value measurements may also be utilized on a nonrecurring basis, such as for the accounting for acquisitions or the impairment of long-lived assets and inventory. As of December 31, 2025, the inventories for which the carrying value was determined to not be recoverable had a fair value of $11.6 million, and there were none as of December 31, 2024. These values are a level 3 in the fair value hierarchy.
The following tables outline the carrying value and fair value of certain other of the Company’s financial instruments with respect to the established fair value hierarchy level, and present a summary of the changes in fair value measurement of contingent consideration (in thousands) for the periods indicated:
As of December 31, | ||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||
| Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
| Mortgage loans held for sale | Level 2 | $ | 205,089 | $ | 205,089 | $ | 303,393 | $ | 303,393 | |||||||||||||||||||||||
IRLC | Level 3 | 1,449 | 1,449 | 487 | 487 | |||||||||||||||||||||||||||
AFS debt securities | Level 2 | 30,704 | 30,704 | — | — | |||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
MBS | Level 2 | 128 | 128 | — | — | |||||||||||||||||||||||||||
| Senior unsecured notes, net | Level 2 | 591,060 | 610,944 | 295,049 | 312,876 | |||||||||||||||||||||||||||
| Contingent consideration | (1) | — | — | 68,030 | 68,030 | |||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Beginning balance | $ | 68,030 | $ | 116,795 | $ | 115,128 | |||||||||||
Fair value adjustments related to prior year acquisitions(1)(2) | (9,820) | 13,939 | 46,590 | ||||||||||||||
Contingent consideration payments(3) | (58,210) | (62,704) | (44,923) | ||||||||||||||
Ending balance(1) | $ | — | $ | 68,030 | $ | 116,795 | |||||||||||
(1)As of December 31, 2025, there were no remaining contingent consideration liabilities. At each previous reporting date, contingent consideration was remeasured to fair value based on actual results, updated earnings estimates and revised risk-adjusted discount rates (Level 3 inputs). The earnout period for MHI concluded on September 30, 2025. The final fair value adjustment for the earnout period was recorded during the three months ended September 30, 2025.
(2)Contingent consideration adjustments related to MHI resulted in income of $9.8 million for the year ended December 31, 2025, and expense of $13.0 million and $43.3 million for the years ended December 31, 2024 and 2023, respectively. Additionally, the earnout period related to the 2020 acquisition of H&H Constructors of Fayetteville, LLC concluded in the third quarter of 2024.
(3)On April 15, 2025, the Company made a contingent consideration payment of $42.5 million related to the 2024 adjusted pre-tax income results of the MHI acquisition. On December 15, 2025, the Company made the final earnout payment for the MHI contingent consideration agreement of $15.7 million.
The following table presents additional information related to the AFS debt securities, including the largest major security type, corporate bonds, (in thousands) for the period indicated:
| As of December 31, 2025 | ||||||||||||||
Amortized cost | Fair value | |||||||||||||
| Years to maturity: | ||||||||||||||
Due in one year or less | $ | 1,080 | $ | 1,166 | ||||||||||
Due after one year through five years | 8,314 | 8,461 | ||||||||||||
Due after five years through ten years | 8,240 | 8,402 | ||||||||||||
Due after ten years | 9,711 | 9,908 | ||||||||||||
Asset-backed securities | 2,746 | 2,767 | ||||||||||||
| Total AFS debt securities | $ | 30,091 | $ | 30,704 | ||||||||||
AFS corporate bonds | $ | 16,384 | $ | 16,775 | ||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2023 | Feb 29, 2024 | |
| 2021 | Mar 16, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.