1. Implicating Fiscal, Monetary, and Macro Economic Factors Affecting Real Estate Values and Conditions An Analysis of the Impact of a Real Estate Market Slowdown on the Frequency and Severity of Claims BY GLEN D. KIMBALL, ESQUIRE AND THOMAS J. GREGORY, ESQUIRE MURPHY & O’CONNOR, LLP

2. Is There a Real Estate Bubble? If So Is It About to Burst? A Best Guess Analysis Presentation BY GLEN D. KIMBALL, ESQUIRE AND THOMAS J. GREGORY, ESQUIRE MURPHY & O’CONNOR, LLP

3. WHAT YOU PAID FOR WHEN YOU BOUGHT IN 2000 WHAT THEY PAID YOU FOR IN 2006 WHEN YOU SOLD? WHAT IS A BUBBLE?

6. VARIABLES THAT IMPACT THE RESIDENTIAL AND COMMERCIAL REAL ESTATE MARKETS FACTORS ●INTEREST RATES ●OVERALL ECONOMIC CONDITIONS ● OIL PRICES ● TAXES ● DEMOGRAPHIC SHIFTS ● WEATHER EVENTS, NATURAL DISASTERS, WAR & TERRORISM

7. THE REAL ESTATE MARKET IS NOT MONOLITHIC: THESE VARIABLES HAVE DIFFERING IMPACTS ON: ● COMMERCIAL VS. RESIDENTIAL REAL ESTATE ● DIFFERENT GEOGRAPHIC REGIONS ● URBAN, SUBURBAN AND RURAL AREAS

13. DEMOGRAPHIC SHIFTS IN POPULATION

14. NATURAL CATASTROPHES

15. FLUCTUATIONS IN MARKET CONDITIONS

17. THE LAST GREAT REAL ESTATE BUBBLE DO YOU REMEMBER STAGFLATION?

18. OIL

19. The Price of Oil The Great Unknown

20. BUDGETING IN THE FUTURE?

21. WAR AND ACTS OF TERROR

23. TAXES ● AS INCENTIVES AND DISINCENTIVES ● VARIABLE IMPACT ON COMMERCIAL INVESTMENT AND RESIDENTIAL PURCHASES

24. REAGAN’S TAX REFORM ACT OF 1986

25. INTEREST RATES

30. C H ECK WIT HtHE8ball

31. CANNOT PREDICT NOW

32. 2006 PLUS E&O Symposium Philadelphia ~ May 16 & 17, 2006 Ramifications of the Real Estate Bubble Presented by: Mike W Smith, President Axis Insurance Services, LLC Franklin Lakes, New Jersey 201-847-9175 www.axisins.com

33. Is the Market Frozen?

36. Dateline NY Times May 9, 2006

37. Concerns Expressed by My Clients About the Market Revenues Are Down Properties Take Longer to Sell Less Bidders Damages May No Longer Be Mitigated by Other Available Buyers Increased Insurance Requirements (SOX) Business People Making Buying Decisions

38. Concerns Expressed by My Clients About their Liability Personal Liability Misrepresentations by Client Insurer Always Looking for a Way Out Independent Contractors (cutting corners)

39. Concerns Expressed about Liability Bad Appraisals High Debt to Equity Ratios Inability to Move Product Increased Disclosure Requirements Increased Responsibility for Client Actions

40. Who is most likely at Risk? Appraisers Mortgage Brokers Inspectors Title Agents Residential & Commercial Real Estate Agents Dual Agents

41. From What Banks and Financial Institutions for Loans in Default Sellers Unable to Unload Properties Sellers Can’t Close on New Properties Buyers Who Purchased Inflated Properties Failure to Disclose….Anything!!!!!

42. Case Studies Mortgage Broker Mortgage broker sued because client could not make mortgage payments  Client took out home equity loan >100% of equity  Ran up credit cards  Defaulted on Mortgage and Home Equity Loan  Returned for another loan - didn’t qualify  Advised to sue mortgage broker  Settled for $27,000

43. Case Study Commercial Real Estate Agent Broker sued because tenant could not make payments on lease  300,000 square foot space, internet bubble tenant defaulted on $117 M lease  Broker sued because they should have screened tenant better  Over $500,000 in legal and still going

44. Case Study Appraiser Appraiser sued for overvalue of appraisals  New construction single family housing complex. Over 50 houses  Interest rates up, market prices down. Houses aren’t moving very fast  Several defaults… Houses are selling for 30% less than purchased  4 suits so far with payout over $250,000  More to follow ($600 appraisers policy)  Our office will not sell a policy with a financial institutions exclusion

45. Case Study Home Inspector Home Inspector sued for losing sale Home inspector report said roof 15 years old (the roof was actually replaced three years ago) Buyer thought owner might be lying about other stuff (furnace, water damage, etc) Buyer walked. No other buyers at that price. In a hot market, the seller would have other options Case is in the initial stages

46. What Do We See? #1 You now can lose money in real estate Ability to mitigate damages with other buyers is limited Many people getting out of the business Revenues down (in underwriting that usually means lower rates, but is that actuarially correct )

47. What Do We See? A Changing Market Place Brokers more aware of their coverages Higher degree of responsibility for real estate professionals Need to enhance coverages Opportunity for the insurers to support the industry