Question-and-Answer Session
Operator
[Operator instructions]. Our first question comes from Michael Rehaut of J.P. Morgan.
Michael Rehaut - J.P. Morgan
Hi, thanks. Good morning.
Larry A. Mizel - Chairman and Chief Executive Officer
Hi, Mike.
Michael Rehaut - J.P. Morgan
First question relates to the regions that you've been operating on and if you could comment in particular in terms of the more challenged conditions over the last three months. Which markets have really slowed down incrementally the most in regards to that? I mean I see that Utah has really fallen off and that obviously areas like California and Arizona and Nevada remain pretty challenged? That's my first question. And in regards to that more difficult market, what you've seen in terms of incremental price deterioration?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Well, Mike, since you answered you own question, you can ask another and we won't be charged, and you won't charged the question.
Michael Rehaut - J.P. Morgan
Okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Just kidding. I mean the markets you mentioned are the markets that we are most challenged. The level of impairments we talked about pretty much reflect what has happened in those markets in the last 90 days, and those that have the largest level of impairments have the largest movement in pricing. And so we have seen California and Nevada and Arizona to a certain degree. Really California first, Nevada second and Arizona third. Utah has started to experience some of it... the same symptoms that the other markets have, although we haven't seen any impairments their and we are still, from a margin standpoint has not been affected quite as much primarily because they did not see the same level of price appreciation as the rest of the country or these other Western markets at least. But it has come off from a tie. And Florida has been a difficult for a lot of people and it's tough for us as well, but our exposure there is relatively limited.
Michael Rehaut - J.P. Morgan
Second question. Thank you, Gary. The second question just related to the continued strong balance sheet, and congrats on that. And the question is with regards to what you are seeing out there in the market. You have mentioned that... you are one of perhaps one of those two builders that are knocking on doors in terms of land deals and seeing what's out there and certainly while maybe the prices in right yet. Could you talk about which markets perhaps you're seeing land prices come down the most, and with another kind of midsized private build of bankruptcy in Newman [ph] homes? Are there some deals coming out at the market right now that are what you consider appropriately priced or how are you looking at that?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Mike, you can see from our balance sheet we haven't spend much in the way of land acquisitions so far even though we are on the hunt... actively on the hunt. I don't know that there is any market right now, certainly in the West that we've seen a significant amount of movement actually taking any action. The few lots that we purchased has come in Colorado for example. Colorado just... Colorado has been difficult for a long time but it hasn't deteriorated as much and there's still pockets of lots in great locations where it does make sense to buy. Same thing holds true in the Mid-Atlantic region and in Delaware where... or the Delaware Valley. Those markets have not deteriorated as much of late and so those are areas that we've seen limited amounts of opportunities but at this point, it's been very limited.
Michael Rehaut - J.P. Morgan
Okay. One last question, if I could.
Operator
Thank you.
Joseph H. Fretz - Secretary and Corporate Counsel
Follow up, Mike?
Operator
Our next question comes from Dennis McGill of Zelman & Associates.
Dennis McGill - Zelman & Associates
Hey guys. How are you?
Larry A. Mizel - Chairman and Chief Executive Officer
Hey, Dennis.
Dennis McGill - Zelman & Associates
My first question, I think Gary last quarter, you guys have talked about the impairment benefit on the gross margin line being somewhere around 270 basis points, is that right?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
I believe that's correct.
Dennis McGill - Zelman & Associates
Do you have a comparable number this quarter and can you briefly explain what that represents on how you calculate it?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Well, the... I guess it's probably not and to back up a minute, the last quarter we speak of it in terms of impairments related to assets that closed during this period that we had claimed previously. It's not really a benefit necessarily, but we do disclose in the pressure leases the amount of the impairment related to homes that close during the quarter. And that number is $36.4 million this quarter.
Dennis McGill - Zelman & Associates
So that, that's kind of really my question. It's not necessarily reversal. It's basically the amount that if you had not impaired any of the homes you have closed this quarter, your gross margin will be that much lower?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That's correct.
Dennis McGill - Zelman & Associates
Okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
It's related by the homes that had we not taken an impairment in prior quarters, we would have had essentially negative margins.
Dennis McGill - Zelman & Associates
Right, okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
And that's the purpose... that's the effect of the impairment.
Dennis McGill - Zelman & Associates
Right. But it's not a reversal of a prior impairment, it's just the value going through.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That's right.
Dennis McGill - Zelman & Associates
Okay. The other question I had, just thinking about your land position and assuming that in lot of these markets you are not getting the adjustment land prices that you would like, and eventually that's very likely to happen. But how long could you sit there in some of your markets realizing you have a lead time of community plan and so forth where you have to begin acquiring land again. Is that... are you essentially protected through '08 and you could sit on your hands, if you wanted to through next year?
Larry A. Mizel - Chairman and Chief Executive Officer
Dennis, I am glad you asked that question. It gets asked a lot when I talk to people. And first you should understand that we don't have to buy lots in time ever. We are going to buy lots when it makes sense in the market, when the price makes sense and the market conditions are right. Even though we are ready willing and able right now, the fact is that we have a substantial amount of lots that can carry us through in most of our markets next year. We have over 13,000 lots, over 18,000 unclosed lots right now but we have to close houses, and so in most... some markets have more on a relative basis than others. But in most markets where we are running lower than others, we will only buy lots there when it makes sense and not because we need to maintain some level of presence. We will continue to shrink it down. Everything is variable, and we will right size until that point in time when it makes sense to gear up again. And at this point if we had no lots there, it still takes a substantial amount of time for us to work through what we have and so... in our presence in most of these markets is pretty substantial. We are not going anywhere in these markets for a while.
Operator
Thank you. Our next question comes from Dan Oppenheim of Banc of America.
Daniel Oppenheim - Banc of America Securities
I was wondering if you can talk about the SG&A a little more. You talked about the decline to go bring it down. But as you think about SG&A as a percentage of revenue, do you have any goals in terms of where you would like that to be if we look out to '08 towards the fourth quarter of this year ?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Dan, we would like it to be lower for sure. It's high and one of the reasons it's high is that when you unwind a number of divisions as we have, there are costs associated with terminations of leases with severance related to terminated employees, and also transition costs related to combinations of information on our systems and making sure that we follow through and transition to the next level of activity in the right way, and don't leave anything... any stone unturned. So during the transition period, we are running at a much higher level than we believe its acceptable. And whether it's a percentage for the next quarter, the next year is probably premature. All of we know is that we're too high and we're... we know we're going to be lower going forward. We believe we will be because we have some costs that are hangovers from actions we've already taken that will run their course for the balance of this year and then we'll have a much cleaner looking company to begin next year.
Daniel Oppenheim - Banc of America Securities
Thanks. And just one follow-up. Then on terms of the operation, what's your report [ph] doing more on the pricing side just to adjust more to increase your revenue base here. I know obviously it worked through the land more rapidly there, but do you anticipate doing more to find the market and generate more orders there?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Dan, our goal is to continue to sell houses at a pace that is appropriate in the market. We're not in a position like some of our peers where there is a large backlog of inventory that needs to be worked through. We really don't have that inventory overhanging and our goal is to maximize the profit that we make on our house well at the same time taking whatever actions that are necessary to sell houses at the same pace as our competition. Whatever the market bares. We are not pushing to sell four a month in a market where the... where all of our peers are selling two a month. We will price it to sell two a month.
Operator
Thank you. Our next question comes from Stephen Kim of Citigroup.
Stephen Kim - Citigroup
Thanks guys. Good job given the environment.
Larry A. Mizel - Chairman and Chief Executive Officer
Thanks Steve.
Stephen Kim - Citigroup
I guess I had two questions related to the land market, if I could. First of all we see from some of the other builders that they are starting to look to, to sell some parcels of land and at least we see something showing up in terms of the income statement, so obviously they're selling some parcels here or there, although not many. And so I guess my question relates to what you're seeing in terms of the counterparties, the ones who are looking to sell land, as obviously builders to consider and then there are other entities. Given your position of taking a lot of dirt and checking out the market. Could you give us a sense for where you're seeing... what is the nature of the resistance to reduce the prices? And what in your opinion would it take, or will it take for the land sellers and if you could talk about it by group, if you like, to actually reduce the selling prices to a level than you think is appropriate in the market?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That's an interesting question, Steve. What is causing the resistance is probably as much a function of not wanting to go too low, too fast, maybe not enough pressure to take action at this point and until they get pressure from their partners or those that are financing them, maybe their motivation isn't to go... isn't desperation as yet. And in this market, the prices have to go quite a bit lower to be attractive, particularly in the Western markets in Nevada, Arizona and in California in particular. So in terms of... I think just pressure from the banks, pressure from their partners to liquidate to monetize to do something other than sit on the ground because nobody's a buyer. Steve, we sold some land too here in the quarter, sold few lots in California and some lots in Arizona. But these... but they were at pretty distressed prices and they were lots that had special attributes to them that would make it not feasible for us to perceive with any development or certainly try to build on those lots. And so we were... somebody got a very good deal with us on those lots, and so until these land sellers recognize they are going to have to make it worthwhile for the builders who already are flushed with inventory most of them to come of the fence and spend dollars, I don't know that's going to happen.
Stephen Kim - Citigroup
Okay.
Larry A. Mizel - Chairman and Chief Executive Officer
Steve, the... I think you are going to see starting next year, we forget that a substantial majority of our housing is built by non-public builders and I'd say the non-public builders as their interest reserves expire and as the private banks, the non-capital market financial sources recognize the conditions of the builder, then at that time we will see land opportunities and land opportunities, I'd guess will be more substantial as we go through next year and we focus on the fact that the regulators and the auditors need to mark-to-market for the non-public builders and we always talk about the public builders. But there is... probably most of the land is held in the non-public builders and the lenders to that market are just now dealing with those issues and those opportunities will take place, I would assume sometime next year, but that's just conjecture. It's all a matter of market forces and we are standing by.
Stephen Kim - Citigroup
Okay. I appreciate that. My next question on land relates to what you think might happen once some of those opportunities eventually do arrive. Obviously, we went all the way back to 1990 or coming out of last downturn, there were a number of years where you all were trying to pair down your inventory of land, those days are well behind now. As I look at it ever since you got your land basis down, so that wasn't... really wasn't a problem. You kind of stuck to maybe a 3.5 or less, really more like 3 over last years worth of supply controlled if we use the trailing 12 month closing to the metric as a guide. And my question is when these opportunities do arrive, can you give us a handle on maybe what you're thinking is in terms of sort of an upper limit of years owned or controlled of land might be? Are you willing to lever up to buy land if the opportunities are ample and plentiful to a level well beyond three years owned, controlled of land?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
No.
Stephen Kim - Citigroup
Okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
It will be less, not more.
Operator
Thank you. Our next question comes from David Goldberg of UBS.
David Goldberg - UBS
Thanks. Good morning.
Larry A. Mizel - Chairman and Chief Executive Officer
Hey David.
David Goldberg - UBS
I was hoping to follow up on Steve's question and I realize it varies by region and the country, but how far away are land sellers the more you think it would be an attractive price and maybe kind of give a range on how much more land prices need to come down from where they are today?
Larry A. Mizel - Chairman and Chief Executive Officer
Substantially.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Yes, it's hard to give you, to peg it, in a lot of markets, it's not even close. It's not just price, it is price in term [ph] and we believe there is a big difference between price and terms. Price is just one component and we will see... as we have always operated with a little bit different paradigm, you should assume that we will also change how we deal with the market opportunities next year and going forward.
David Goldberg - UBS
I guess my follow-up question will be about any markets you are seeing where reduce in pricing isn't stimulating demand kind of no bid market, if you are seeing that and if so, how pervasive is that?
Larry A. Mizel - Chairman and Chief Executive Officer
I would say everything is responsive to pricing.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
There would be an odd community here or there that maybe... you would experience that on a temporary basis but pretty much we are... the price adjustments that we make, we see the desired response.
Operator
Thank you. Our next question comes from Susan Berlin [ph] of Bear Stearns.
Unidentified Analyst
Hi, good morning. I know you guys are obviously in a great liquidity position, I was just wondering if you can help me. I know you haven't gone back to your bank and I was just wondering if you can come and walk us through what you tangible net worth cushion is now.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Susan, I know you are trying to be a safe man here today but actually we did file an 8-K last night and included in that 8-K was our earnings release as well as an amendment that we executed yesterday with our banks in regard to the tangible net worth test having... it's something that was not... obviously, not required now. We had a substantial cushion. It's a number that we have not disclosed publicly but what you can see relative to our shareholders' equity, which stands just above $1.8 billion that we reset the floor for our tangible net worth test at $1 billion for '05.
Unidentified Analyst
Okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
And that's really... the starting point. Obviously, the tangible net worth is a little different from what our shareholders' equity is but on a relative basis you can see the substantial gap there. And you should understand that the test, this tangible net worth test to which the $1 billion for '05 applies that test is not result in a default under our agreement. It sets into works of terms [ph] that occurs over an 18 month period.
Unidentified Analyst
Great. That helps a lot. Thank you. I'm sorry I missed that.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Not a problem.
Operator
Thank you. Our next question comes from Randy Raseman of Durham Asset Management.
Randy Raseman - Durham Asset Management
Hi, can you guys talk a little bit about sort of what you think kind of normalize gross margins would be in this environment? And then within that question, I'd also like to kind of understand between the revenue line and the gross margin line, breakout the components between how much of that cost is materials and labor? How much is land and then whatever else maybe buried in there?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Oh, that's something that maybe we want to talk about offline a little bit. If you want to give me a call later or I can give you a call.
Randy Raseman - Durham Asset Management
Okay.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
To get into too much specifics. But in terms of a normalized margin, we have been hard pressed to really determine what a normalized margin is because there is such a large swing in terms of margins and certainly we've experience it over the last couple of years. Right now we're near the low end of where we've seen margins for our company. And so what's normalized... we certainly have taken steps to try to raise the bar on what that average might be when an average is out. But it is something that's really is hard to... be hard to quantify. Now in terms of the margins between the... values in between, our land cost is running around 27% of revenues with difference... you have got some financing cost that run in the 1% to 2% range and in terms of closing costs and the rest of it is just sticks and bricks.
Randy Raseman - Durham Asset Management
Are those percentages of current ASP or percentages of peak ASP?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Current.
Randy Raseman - Durham Asset Management
And then just one last question. Of the when you guys talk about your backlog of 3399, how many homes do you have in width right now?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
We have 15100 homes in width right now of which just over 1500 are unsold.
Operator
Thank you. Our next question comes from Timothy Jones of Wasserman and Associates.
Timothy Jones - Wasserman and Associates
Hi, Gary. Hi, Larry.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Hi, Tim.
Larry A. Mizel - Chairman and Chief Executive Officer
Tim, how are you?
Timothy Jones - Wasserman and Associates
I'm fine. How are you?
Larry A. Mizel - Chairman and Chief Executive Officer
Good.
Timothy Jones - Wasserman and Associates
I'll ask a couple of questions. The one thing I have been asking all the builders are can you give me what's your total and headcount and especially the headcount from just the building operations is now and where it was last year on both sections?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Splitting it between the mortgage company --
Timothy Jones - Wasserman and Associates
Mortgage company and anything out there under state building. I'm trying to get sale for employee and seeing who's doing what ? Probably better on sale for employee underwater?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
I don't have a breakdown in front of me, but in total we have about 2500 employees right now.
Timothy Jones - Wasserman and Associates
Probably about 350 in the title and so forth [ph]?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
We've got... we got our corporate employees. We've got the title company --
Timothy Jones - Wasserman and Associates
Sort of inclusive --
Paris G. Reece III - Executive Vice President and Chief Financial Officer
It's not a lot there.
Timothy Jones - Wasserman and Associates
I include... I include the corporate really with the builders, I think especially... okay. And do you know what it was last year?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
I am sorry.
Timothy Jones - Wasserman and Associates
Do you know what it was? Was it down from last year?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Yes, it is. It was around 3500, I believe a year ago.
Timothy Jones - Wasserman and Associates
Okay. The other question is, and I am sorry if I missed this but I was called off for about 5 minutes. This reduction if we're just putting back home again of you divisions from 27 to 17, what happened to the other managers and how much has that cost you?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
The other managers are, I would say, most of them are no longer with the company. We have... and it's been a combination as we grew. We not only had 27 divisions, we had 6 regions, so in addition to division presidents, we had regional presidents that we had... as we have shrunk, we have moved more to a structure that is more of a direct reporting relationship. We still do have several regional presidents that pretty much function not only as regional presidents but division presidents as well for certain divisions. And the division presidents for the divisions that are no longer there, those managers are, for the part are no longer with us.
Operator
Thank you. Our next question comes from Jim Wilson of JMP Securities.
James F. Wilson - JMP Securities
Thanks. Good morning, guys.
Larry A. Mizel - Chairman and Chief Executive Officer
Hi, Jim.
James F. Wilson - JMP Securities
Most of my questions have been answered, but I was... taking through regional profitability and I know obviously you X out the impairments but they have a lot to do with it. Where are margins still at reasonable levels or could you discuss them a little bit. Any parts of the country, I am thinking maybe those were California parts of Virginia and what are those look like at the moment and maybe contrast with some of the poorer regions?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
We really, Jim, we haven't disclosed margins by region. We talk about profitability and I think we do have --
James F. Wilson - JMP Securities
You want to tell us where it is more profitable without telling us what the numbers are, that would be helpful?
Operator
Thank you.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Let me respond to Jim's question. Jim, I guess you could say that right now, the greater level of profitability excluding impairments certainly is probably on a relative basis in our mountain region here in Colorado and in Utah. Utah is still reasonably profitable and in Colorado, it's been holding its own. It hasn't deteriorated nearly to the degree over the last couple of years that we've seen in the West and the East. And the other markets are I would say California... the Western region is difficult pretty much across the board with California being the toughest. Nevada is still very difficult as well and Arizona, there are certain parts of Arizona, Tucson in particular that Tucson is not doing too badly, but Phoenix... certain parts of Phoenix, some of the outlying area more difficult. And certainly Maricopa and Kelsey Graham [ph] some of those outlying areas are very difficult as compared to some of the inner markets in that city. Maryland is also a market that has continued to do reasonably well relative to some of the other markets around the country. Does that help you?
James F. Wilson - JMP Securities
Yeah. That's great. All right thanks.
Operator
Thank you. Our next question comes from Alex Barron with Agency Trading Group [ph].
Unidentified Analyst
Hi Garry. Hey Larry. Some other builders have been talking about some communities being, I guess, priced in elastic and I guess Larry you said everything was responsive to pricing, so I'm just trying to understand what is your strategy when you start running into very few or no sales. You just keep cutting the prices or what is part of the minimum sales that what you are trying to achieve?
Larry A. Mizel - Chairman and Chief Executive Officer
We try to balance our assets with a reasonable degree of velocity predicated on the markets, and we found that price adjustment, incentive adjustment, product adjustment and even sales personal adjustment, almost always has a positive result and all these things are very, very intensely managed at the home office. We are very hands on and we are analyzing on the continuous basis... on a continuous basis each and every subdivision.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
And Alex, this is... when Larry says it's being managed very tightly, we are looking at this all the time. And the impairment process has brought a higher degree of sensitivity at this level in terms of what pricing is doing and what make sense. When you look at what it takes to build a house in some of these communities and you run through a residual cash flow analysis, you see that in a given community here or there might produce a result because of competitive pressures that maybe temporary in a particular submarket where continued reductions in pricing just don't make sense from a financial standpoint. You end up selling houses with a residual land that's lower than what it costs to develop the lot. And it may lead you to a different conclusion on what you do with those lots, which was kind of the case with these parcels that we sold during the third quarter, not a large part of our business certainly but certainly an example of what as these impairments are gotten larger, the sensitivity that we have to these changes has led us to react differently than just okay let's keep lowering prices and selling houses at loss. Sometimes it makes sense to do something with the lots themselves.
Unidentified Analyst
But if other builders are just lowering, becoming more desperate because they have got liquidity issues or whatever, I realize sort of what you are saying but is there any other alternative to just trying match what they are doing or it's what you are saying basically just sell the land for whatever you can get for it.
Larry A. Mizel - Chairman and Chief Executive Officer
I think one of the key elements in my earlier comments is we believe there is a value in protecting our brand. We are not the low cost producer. We are not the mass marketer. We believe that we have a reputation and an image of a quality builder and we intend to maintain that through this market period and we have been very selective on how we handle everything. Since we don't a lot of specs, we're not forced to making decisions that are not in the interest of the company. As you can see, we've created a very substantial amount of cash flow from our management skills and we will continue to do that for the benefit of not only the short one of a large cash flow, but also with preparing ourselves for the future commented on the programs that we have going on the customer initiative. We're very focused to make sure that our customers are leaving with a good impression that we provide a better product and that our operations are in a manner consistent with where we expect to be going forward versus these current difficult conditions, but having been through this for about 35 years, this is just a little bit more rapid market adjustment than in the past, but it's well within our skill set and we expect to deal with it in a proper way.
Operator
Thank you. [Operator instructions]. We have a question from Michael Rehaut with J.P. Morgan.
Michael Rehaut - J.P. Morgan
Hi, thanks. Just a couple of quick follow ups. First on the tangible net worth, we appreciate Garry you pointing out some of the details from the 8-K. You said that you reset the floor to $1 billion for '05. What was the original floor and you said that even if you fall below it that doesn't represent a technical default.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Mike, the original floor was set in September of '05 at $1.36 billion and of course it's been adjusted up from there based on earnings subsequent to that date and proceeds from issuing stock, and things of that nature in accordance with the terms of the agreement.
Michael Rehaut - J.P. Morgan
So the new floor is from here on out, it's works for the [ph] $1.4 billion roughly.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
$1.405 billion is the new starting point to the extent that we recognize profits in the future. 50% of that will increase. On the other terms, pretty much stay the same, including the $300 million available with respect to repurchasing stock subsequent to September 30th.
Michael Rehaut - J.P. Morgan
And if you have losses on a net income basis, 50% of those losses get applied to the floor or lower the floor?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
No, they do not.
Michael Rehaut - J.P. Morgan
And like you said before, you said that if you do fall below, it does not constitute a default?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That's correct. If you fall below, it starts to term out of the facility over an 18-month period.
Michael Rehaut - J.P. Morgan
Okay. Second question just on the SG&A. you mentioned in the beginning of the call that you had some good year-over-year declines and headcounts and you have reduced the number of divisions, but I was wondering if you could kind of give us what you have done in this quarter from the end of 2Q? What incremental have you done in the last 90 days and what I'm trying to get at is that, if there is any incremental benefit from the $105 million, which you hit in the third quarter, which is obviously a nice reduction.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
The changes that we've had made, Mike, are not going to be even for some of things we did in the second quarter and not going to be visible in their entirety until after the first of the year because we made the decision earlier in the year, even before this third quarter to combine four divisions in Southern California into one over this last period of time. We have spent the time vacating offices. That's something that we accomplished during the quarter, which created certain termination, lease termination cost and there have been some people that have left. We have undergone a large conversion of our information base in that market into once new company, combined company. A lot of these things throughout these markets are not going to manifest themselves until the impact of the severances have occurred, which are primarily targeted to the end of this year.
Michael Rehaut - J.P. Morgan
Can you give some idea of perhaps what incremental savings you might be looking forward too in '08 versus '07 regarding the actions you have taken?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
No, Mike it's... I can't put a specific dollar figure on it. I just know that all these things are... they are somewhat diluted by the fact that our... the cost of project write-offs have been higher this year than last and those things run through G&A as well. And so I can't really put a dollar figure on it. I just know that as we have shrunk the company, this line item is going in the same direction, perhaps not at the same pace but hope to pick up the pace and create additional leverage beginning first quarter next year.
Operator
Thank you. [Operator Instructions]. Our next question comes from Rashid Dahod of Argus Research.
Rashid Dahod - Argus Research Corp.
Hi, thanks. Regarding pricing in the adjustment that you may make, what impact does that have on backlog and how do you handle that?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That's a very good question. In certain markets depending on how deep the cut is and whether the adjustment is deemed to be appropriate to base prices versus special incentives for spec homes, if we cannot distinguish them from what's in backlog, there have been times that we've had to go to our home owners and be proactive and make some adjustments. But it's really... it varies community by community and I would say in a lot of cases, these adjustments relate to our attempts to move spec houses and we generally can distinguish those home in terms of location or what's included in those homes to avoid a mass impact to the backlog. But there are circumstances where we had to go back to the other home buyers in backlog and make some adjustments.
Rashid Dahod - Argus Research Corp.
Okay. Thanks. And then your cash flow assumption, are they based on your current state or you also build in what may happen if you have to take further adjustments?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
In terms of debt for accounting purposes.
Rashid Dahod - Argus Research Corp.
Yes for impairment purposes or just your... what you are expecting to generate for the year and hope for the quarter?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
We haven't disclosed what we expect to generate and that's a different question. When we do our impairments, we pretty much assume what's going on in the marketplace today and that may involve reductions below where we are priced today, but only because we haven't found the market based on what we are pricing houses at today. So if we are not selling houses at the pace we anticipate, we have to estimate where the market is and where we are going to have to lower prices in the future in order to hit where the market is today.
Operator
Thank you. Our next question comes from Sangam Segarney [ph] of Goldman Sachs.
Unidentified Analyst
Thank you. Sangam Segarney. I have two questions. First question, when you look at your write-offs, what sort of pricing environment are you expecting for 2008? Are you assuming flat pricing 5% down, 10% down, 5% up if you could help me with that? Thanks.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
We are assuming no change in pricing. Generally, our projects have a couple of year duration and over that couple of years, we are assuming no change in pricing. When we start getting into the few projects that we have that are longer term, we will... starting in 2010, if we go beyond that point, we assume there is a nominal increase in net pricing starting in that year but there are really few subdivisions that are impacted by that.
Unidentified Analyst
Okay. So if we were to assume 5% price decline next year, what will that do to your inventories? The book value of inventory?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
It will depend on where the price, if you assume and across the board there --
Unidentified Analyst
Across the board, yes.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Yes, there would obviously... there would be some additional impairments. The impairment is a very bright line.
Unidentified Analyst
Right.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
If you have a dollar of positive cash flow, you're... there is no impairment. If you have a dollar of negative, it would drop over the cliff and our inventory is a mix of assets that are now on the positive side of that line after these impairments but there are some that are closer than others. And I can't tell you... it's not something that we get into because pricing is not the only assumption.
Unidentified Analyst
Right.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
That impacts it. There are... obviously absorptions are important as well as the discount rate that's applied and so we have stayed away from even getting into that. But obviously, you can see that with the level of impairments we've taken, we've impaired a substantial amount of the assets that we can. And so relative to others in our industry, I think we'll probably on the high side there, which puts us further down the road as this thing hopefully comes to an end at some point in the future.
Unidentified Analyst
Okay, great. And second question when you look at your land bank, you had mentioned earlier that the pricing environment is still pretty high for land sales up. How does that compared with the book value of your land versus where the market is right now?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
I am sorry. Run that by me one more time?
Unidentified Analyst
You had mentioned earlier that land prices, land sales are still very optimistic in the market. So I am wondering how did your land price, book value of your land compares to the transaction out their in the marketplace or the prices that are being quoted for land bank out there?
Paris G. Reece III - Executive Vice President and Chief Financial Officer
It's a mixed bag. Obviously, the book value of our land is at a level that we believe based on today's market.
Unidentified Analyst
Right.
Paris G. Reece III - Executive Vice President and Chief Financial Officer
Is at a level that will enable us to be profitable. And for those assets that we have impaired, which constitute more than half of our loss, we believe that our land values are at a level that will enable us to produce a reasonable rate of return, somewhere between as our discount rates range from 10% to 18% averaging approximately 15%. So it's going to be somewhere in the 50% return standpoint, which depending on the stage of the asset will yield a wide range of margins. But nevertheless, we will produce some level of profits going forward.
Unidentified Analyst
Okay, thank you.
Operator
Thank you. I am showing no further questions at the time, sir. Please continue.
Larry A. Mizel - Chairman and Chief Executive Officer
We would like to thank you again for joining our call today. We look forward to having the opportunity to speak with you in January, following the announcement of our 2007 fourth quarter and full year results. Everybody have a great day. Thank you.
Operator
Ladies and gentlemen, this conference will be available for replay after 4 PM today through November 25 at 11:59 PM. You may access the AT&T teleconference replay system at any time by dialing 1800-475-6701 and entering the access code 889130. International participants dial 320-365-3844. Those numbers again are 1800-475-6701 and 320-365-3844, with the access code of 889130. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.
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