Vision Speech 2013 Gary Keller

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KELLER WILLIAMS@ REALT'l'

The Numbers That Drive U.S. Real Estate

Home Sales

Home Price

Inventory

Mortgage

Affordability

2

Home Sales Home sales are up 9.2% to 4.65 million in 2012 from 4.26 million in 2011. Annual sales levels are now close to 2007 levels.

3.0 2.9 2.9 3.2

3.4 3.5 3.5

3.8 4.0

4.7 4.7 4.6 4.5

5.0

5.4

6.2 6.0

5.7 4.9

4.7 4.6 4.4 4.3 4.3

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Total Annual Single Family Home Sales (in Millions) Source: NAR

3

Home Sales MONTHLY ANNUAL PACE OF SALES

(Seasonally Adj.)

The year ended on a strong note with a 12.8% increase in the monthly annual pace of sales from December 2011 to 2012.

4.99 4.83 4.63

4.62

4.60

4.69

4.62

4.47 4.37

Jan

Feb

Mar

12.8% Increase Source: NAR

4.76

4.47

4.38

Dec '11

4.94

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec '12

Total Annual Home Sales (in Millions) 4

Home Price Median home prices are up 6.3% to $176,600. If prices followed a 4% appreciation rate each year, the median price would be $231,683. This implies prices may still be 23.8% undervalued, based on the trend line. $231

$222

$179

$198

$177

$166

$95

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Long-Term Average = 4%

Source: NAR

Annual Median Home Price (in Thousands)

5

Annual Appreciation $172,900 6.0%

$2,938 1940

Sources: Census, * NAR

5.4%

$7,354

5.5%

$11,900

$143,600

6.0% 4.4%

$96,400

$47,200

3.0% 1.9%

$17,000

1950 1960 1970 Compounded Growth Rate from Given Year to 2010

1980

1990* 2000* Median Home Price

2010*

6

Annual Appreciation Home price appreciation is back in positive territory and growing strong, thanks in part to less distressed sales and tightening inventory.

12.2% 5.9%

5.5% 2.9%

4.0% 3.1% 3.4% 2.7%

4.8% 5.2% 5.4% 3.8% 4.3%

1989-2000 3.39%

6.3%

2006-2011 - 4.6%

8.3% 7.5% 7.0% 1.3%

2001-2005 8.9%

6.3%

0.6%

-1.8%

-2.7%

-9.8% -12.5%

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Annual Median Home Price Appreciation Source: NAR

7

Home Price

MONTHLY

In December, the median home price was up 11.5% compared to the same month a year earlier.

Prices reached a high of $188,800 during June, the highest monthly level since September 2008. The last time there were 10 consecutive monthly increases was August 2005-May 2006. $188.8 $187.8 $180.3

$184.9

$173.7

$180.8 $179.4 $178.3 $176.9

$164.8

$162.2 $154.6 $155.6

Dec '11 Jan

Feb

Mar

Apr

11.5% Increase Source: NAR

May

Jun

Jul

Aug

Sep

Oct

Nov Dec '12

Monthly Median Home Price (in Thousands) 8

Months Supply of Inventory 10.4 8.9 Balanced = 6 months

8.3

6.5

4.5

4.6

4.7

4.7

4.3

4.5

‘99

‘00

‘01

‘02

‘03

‘04

‘05

Balanced = 6 months

5.9 Seller’s Mkt

4.8

Source: NAR

8.8

9.4

Buyer’s Mkt

Annual average inventory declined 28% and is back to balanced levels for the whole of 2012. While local markets may vary considerably, year-end monthly numbers show the United States is clearly in a seller’s market.

‘06

‘07

‘08

‘09

‘10

‘11

‘12

Annual Months of Inventory 9

Months Supply of Inventory MONTHLY

6.4

6.0

6.3

6.2

6.5

6.4

6.5

6.4

6.0

5.6

5.3

4.8

Dec '11 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov Dec '12

31% Decline Source: NAR

Months Supply of Inventory

4.4

Seller’s Mkt

Buyer’s Mkt

When looking at the monthly inventory levels, December 2011 to December 2012 months supply of inventory is down 31%. The last quarter of the year illustrates a clear move into a seller’s market.

Balanced = 6 months 10

Inventory MONTHLY

Select Local MLS

Most markets are back to a seller’s market. Pennsylvania is one of the few buyer’s markets left.

20

Buyer’s Mkt

Months Supply

15

10

0 Dec-11 Central PA Source: BrokerMetrics

Seller’s Mkt

5

Mar-11 Eastern PA

Jun-11 Houston TX

Sep-11 Miami FL

Dec-11 Mid FL

Austin TX

Mar-12 Los Angeles CA

Jun-12 San Diego CA

Sep-12

Dec-12

Balanced (6 months) 11

Residential Building Permits After a sharp decline, new home building is picking back up as inventory falls.

Sep 1972 All-time high of 2,419

Sep 2005 Hit a high of 2,263

Jan 1960 1,092 Residential building permits in thousands

Existing home inventory

Sep 1975 Fell to 719

Jan 1991 786

Steeper decline than 2005-2009 higher interest rates and oil prices Source: BEA

Residential Building Permits (in Thousands)

Months Supply (in Months)

Nov 2012 900

Mar 2009 All-time low 513 12

Mortgage Rates 30-Year Fixed Mortgage rates hit a record low for the year of 2012 at 3.66%. The Federal Reserve has kept Treasury rates low and the spread, or difference, between the two has tightened since 2008.

16.6 13.7 11.2

7.4

8.0

1972

9.2 9.1 8.9 8.9 9.6

16.0 13.2

13.9 12.4 10.2 10.2 10.3 10.3 10.1

9.3

8.4

8.4 7.3

1975

1980

1985

1990

7.9 7.8 7.6

1995

6.9

7.4

8.1 7.0

2000

6.5

6.4 6.3 6.0 5.8 5.8 5.9

2005

5.0 4.7 4.5

3.7

2010 2012

Annual Mortgage Rate (%) Source: Freddie Mac

13

Mortgage Rates

MONTHLY 2006-2012

The year ended on a record-breaking low. In November 2012, monthly interest rates hit an alltime low of 3.35% and stayed through the end of the year. Rates are down 2.8 percentage points and have declined 45% since January 2006.

6.76% 6.15% 4.81% 3.35% Jan '06

Jan '07

Jan '08

Jan '09

Jan '10

Jan '11

Jan '12

Dec '12

Monthly Mortgage Rate Source: Freddie Mac

14

Affordability

PERCENTAGE OF THE MEDIAN FAMILY INCOME REQUIRED FOR MEDIAN PRICE HOME PAYMENT

It takes a smaller slice of the typical family’s income to pay the mortgage on a median-priced home.

Historically:

2012: 12.9%

21.6% Everything Else Principal and Interest Payment

78.4% Source: NAR

87.1% 15

Affordability

PERCENTAGE OF THE MEDIAN FAMILY INCOME REQUIRED FOR MEDIAN PRICE HOME PAYMENT

It has never been more affordable to own a home—the United States breaks another record.

36.3%

Long-Term Average = 21.6%

23.2%

17%

‘70

Source: NAR

12.9%

‘75

‘80

‘85

‘90

‘95

‘00

‘05

‘10

‘12

16

The Good Old Days McDonald’s only had one arch and hamburgers were 15 cents

A night in the hospital was15 dollars

Gas was 20 cents per gallon

Postage stamps were 3 cents

17

Affordability in Perspective 1989

2012

New Car: $15,350

New Car: $30,000

Gas:

$0.97

Gas:

$3.54

Bread:

$0.67

Bread:

$1.99

Source: BEA

18

Affordability in Perspective

1989

Median Home Price: $94,000 Mortgage Rate: 10% Monthly P&I Payment: $825 Sources: NAR, Freddie Mac

2012

Median Home Price: $176,600 Mortgage Rate: 3.4% Monthly P&I Payment: $626 19

The Numbers That Drive Canadian Real Estate

Home Sales

Home Price

Inventory

Mortgage

Affordability

20

Home Sales Home sales were stable in 2012 and are expected to be the same in 2013. New mortgage regulations are working as intended by spurring a tightening of the market.

382 317

295 246

321

298 298

419 434

460

484 483

521 465 447 457 453 432

324 331 315 335 334 261

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Source: CREA

Annual Home Sales (in Thousands)

21

Home Price Home prices were stable in 2012, rising by only 0.3% after a period of strong growth. Prices are above the 4.4% trend line, implying that prices may be overvalued in Canada. The government has taken measures to help cool the market, which is a positive indicator for long-term stability.

2002-12

7.1%

1986-89 1981-85

1.5%

16.3%

1990-01

1.4%

67 76 72 77 76 80 94 110 130 147 142 149 150 153 158 151 151 155 152 158 165 172 189 208 227 249 277 307 305 320 339 363 364

‘80 ‘81 ‘82 ‘83 ‘84 ‘85 ‘86 ‘87 ‘88 ‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Average Home Price (in Thousands $) Source: CREA

‘80-’00 Compounded Growth Rate (CAGR) = 4.4%

‘80-’12 CAGR = 5.4% 22

Inventory 63% 47% 40%

61% 62%

59% 47%

52% 53% 52%

39%

Buyer’s Mkt

33%

44% 42% 42%

48% 50% 50%

56% 56%

66% 64% 64%

Balanced

71%

Seller’s Mkt

Inventory remains firmly balanced in Canada. Local markets may vary.

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Source: CREA

23

Inventory

Local Markets

Seller’s Mkt

100%

Balanced

75%

50%

0% 1980

Buyer’s Mkt

25%

1982

1984

1986

Winnipeg Source: CREA

1988 Calgary

1990

1992

1994

1996

Kitchener-Waterloo

1998

2000

2002

Vancouver Island

2004 40%

2006

2008

2010

2012

60% 24

Mortgage Rates 5-Year Fixed Mortgage rates continue to be at all-time lows.

13.4% 12.1% 11.1% 9.5%

9.5% 9.2% 8.8%

7.9%

7.1% 6.9%

7.6%

8.4%

7.4% 7%

6.4% 6.2% 6%

7.1% 7.1% 6.7%

5.6% 5.6% 5.4% 5.24%

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Source: Bank of Canada

25

Affordability

PERCENTAGE OF MEDIAN PRE-TAX HOUSEHOLD INCOME REQUIRED TO SERVICE THE COST OF MORTGAGE PAYMENTS (PRINCIPAL, INTEREST, PROPERTY TAXES, AND UTILITIES)

Homeownership costs remained fairly stable over the last two years. Lower mortgage rates helped lessen the costs of owning a home in Canada.

- Two storey homes have led the charge in deteriorating affordability, compared to the historic average.

- Bungalows and condos remain fairly close to the norms.

Property Type

Q3 2011

Q3 2012

Q3/Q3 Change

Avg. Since 1985

Q3 2012 Vs. Avg

Detached bungalow

42.7%

42.0%

-0.7%

39.4%

+2.6%

Standard two-storey

48.8%

47.8%

-1.0%

43.8%

+4%

Standard condo

29.0%

28.0%

-1.0%

27.1%

+0.9%

An increase in cost (%) represents deteriorated affordability ( ) A decrease in cost (%) represents improved affordability ( ) Source: RBC

26

The United States Economy

Gross Domestic Product

Unemployment

Inflation

27

Gross Domestic Product

ANNUALLY

2012 marks the third year in a row of positive growth.

3.6%

3.4% 1.9%

4.1% 2.9%

3.7%

4.5% 4.4%

4.8%

4.1%

3.5%

2.5% 1.1%

1.8%

2.5%

-0.2%

3.1%

2.7%

3% 1.9%

1.7%

2.2%

-0.3%

-3.5%

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Real GDP Year-over-Year Change Source: BEA

28

Gross Domestic Product

QUARTERLY

After six quarters of strong growth, Q4 GDP disappoints with a slight contraction—the first since Q2 2009.

3.6%

3.0%

0.5%

4.1%

4.0% 1.7%

1.4%

1.3%

2.3% 2.2% 2.6% 2.4%

2.5% 0.1%

1.3%

2.0%

3.1% 1.3% -0.1%

-0.3% -1.8% -3.7% -5.3% -8.9% Q1 ‘07

Q3 ‘07

Q1 ‘08

Q3 ‘08

Q1 ‘09

Q3 ‘09

Q1 ‘10

Q3 ‘10

Q1 ‘11

Q3 ‘11

Q1 ‘12

Q3 ‘12

Real GDP Growth Rate, Quarterly, Seasonally Adjusted Source: BEA

29

Unemployment

ANNUALLY

Although the annual level of unemployment spiked in a recession spurred on by the Fed in the early 80s, monthly unemployment hit 10% in October 2009, the highest since World War II. 9.7% 1982

9.6% 2010

New Normal? = 6.5%

8.1% 2012

Historical standard = 5.6%

3.9% 1947

1947 Source: BLS

4.6% 2006-7

2.9% 1953 1950

1960

1970

1980 1990 Annual Unemployment

2000

2012 30

Unemployment 9 0 0 2 t

p m Oc

10.0%

u 10% J p o

10.0%

MONTHLY

Steady Gradu

Since hitting 1

al Decline

0% in Octobe

r 2009, now a t 7.9%

t r 8 a 0 0 h S 2

7.5%

m o Fr

i %

5

7.9%

an J n

5.0% 5.0%

2.5%

0%

Jan08

Source: BLS

May08

Sep08

Jan09

May09

Sep09

Jan10

May10

Sep10

Jan11

May11

Sep11

Jan12

May12

Sep12

Jan13 31

Inflation Inflation remains close to the 2% target rate.

5.0% 4.5%

1.7%

1.4%

1989

1991

1993

1995

1997

CIP (includes energy) Source: BEA

1999

2001

2003

Core CIP (excludes energy)

1.0%

2005

2007

2009

2011

Target = 2% 32

The Canadian Economy

Gross Domestic Product

Unemployment

Inflation

33

Gross Domestic Product After rebounding sharply in 2010, economic growth has slowed but remains positive.

5.6% 5.3% 3.9% 2.7% 1.4%

2.1%

3.1% 3.0% 2.8%

3.4% 2.4%

2.3%

1.9%

0.9%

-3.0% ‘98

‘99

Source: Statistics Canada

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

Real GDP Year-over-Year Change

‘08

‘09

‘10

‘11

‘12 34

Unemployment Unemployment continues a downward trend, improving the conditions for employees and job seekers.

12.0 11.1 11.4 10.5

11.211.4 10.4 10.3

9.6 8.4 8.1 7.1

8.8 7.5 7.5 7.6

‘76 Source: Statistics Canada

‘80

7.8 7.5

9.5 9.6

8.3

8.2

‘85 ‘90 Long-Term Average = 8.5%

9.1 7.6 6.8

‘95

7.7 7.6 7.3 7.2

‘00 Unemployment

8.3 8.0 6.8

‘05

7.5

7.1

6.3 6.1 6.2

‘10 35

Inflation

Consumer Price Index

Since the early ‘90s, core inflation, which excludes energy, has been fairly stable.

4.5%

2.4% 1.7%

1.3%

‘85

‘90 CIP (includes energy)

Source: Statistics Canada

‘95

‘00 Core CIP (excludes energy)

‘05

‘10

‘12

Target = 2% 36

Events That Drive the Numbers in the United States

Industry

Worldwide

Government

37

Sides Per Agent

The average transactions available per agent

As the number of agents continues to decline and the number of sales increases, the number of available sales is up to a 7-year high.

13.8 14.0

13.8 13.6 13.5 13.3

12.7 11.6

11.1

8.7

8.5 7.6

6.7

Source: NAR

10.3

823

9.2

1,000

11.2

10.1

9.5

8.2

8.0 7.9

7.0

9.9

12.9 12.6 12.3

7.5

718

7.8 7.9

8.4

10.1

6.9

6.4

486

‘76

9.9 9.6 9.4 9.1 9.3 9.5

10.7 10.7

12.2

1,358 14.2

4.4

‘80

‘85 Sides Per Agent

‘90

‘95 Agents (in Thousands)

‘00 ‘05 Available Sides (in Millions)

‘10

‘12

38

Sides Per Agent

The average transactions available per agent

2012 is up 57% from the all-time low in 2008 and just 20% down from the 20-year high in 1998.

13.8

10.3

10.7

10.7

11.6

13.6

13.5

12.2

13.3

12.9

12.6

12.3 11.2

U

9.5 7.5

‘93 Source: NAR

‘94

‘95

‘96

‘97

‘98

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

6.9

‘08

% 7 p5

7.8

7.9

‘09

‘10

10.1

8.4

‘11

‘12 39

Credit Conditions Lending has been up since Q2 2011 but fell in Q4, likely due to uncertainty around the fiscal cliff.

17.1%

8.8% 2.4%

0% -8.7% 1986

1988

1990

1992

1994

1996

1998

2000

Annual Growth Rate in All Bank Credit Source: Federal Reserve

2002

2004

2006

2008

2010

2012

0% 40

Foreclosures Distressed property sales stabilized in mid-2012, which is an important key to a healthy overall market. 24% of the market is distressed—split evenly between short sales and foreclosures.

49% 40%

38% 34%

35% 31%

29%

29% 22%

Oct '08

Feb ’09

Jun '09

Oct ‘09

Feb ’10

Jun '10 Foreclosures

Source: NAR

Oct ‘10

Feb ‘11

Jun ‘11

Oct ‘11

Feb ‘12

Jun ‘12

24%

Oct ‘12

Short Sales 41

European Debt Crisis The outlook for Europe is bleak.

GDP for the Eurozone contracted by 0.5%. Contraction has taken root in many countries, with Germany, the strongest Eurozone economy, contracting in Q4 2012. This is the first year the currency area has not posted positive growth in any quarter dating back to 1995.

Unemployment averaged 11.8% in November 2012 but is much worse in struggling countries (Spain, Italy, Greece) and among the youth who have an average 24.4% unemployment.

- Spain’s overall unemployment is 25% and 57% for their youth.

Sources: The Wall Street Journal, European Central Bank, Goldman Sachs

42

Fiscal Policies: Cliffs, Sequesters, and Debt Ceiling The fiscal cliff referred to a list of across-the-board tax increases and automatic spending cuts that would have taken place in 2013 without legislative action.

It was averted in part by the American Taxpayer Relief Act of 2013 passed January 2 this year.

- Bush-era tax rates were extended, payroll tax was not - The automatic spending cuts were pushed to March.

A new deadline for part II of this conversation—averting automatic spending cuts—is March 1.

Sources: The Wall Street Journal, European Central Bank

43

Mortgage Settlement In January 2013, an $8.5 billion deal was agreed upon between ten big mortgage lenders and regulators to increase efficiency and end the loan-by-loan review of foreclosures.

This was to address the Independent Foreclosure Review that was intended to review loans foreclosed from 2009-2010. This review was said to be poorly designed and executed.

The $8.5 billion includes cash contributions, changes in loan terms, and mortgage forgiveness. It pays up to $125,000 to homeowners who were victims of improper foreclosure proceedings.

There are concerns that this may “allow banks to skirt what they owe and sweep past abuses under the rug ...�

Source: The Wall Street Journal

44

Events That Drive the Numbers in Canada

Industry

Credit

Government

45

Sides Per Agent Available sides per agent is down 3.5% from last year but remains relatively steady since 2008.

12.2 9.2

‘98 Source: CREA

10.1

12.6

12.2

12.0

11.7

10.5

10.9

11.1 8.9

‘99

‘00

‘01

‘02

‘03

‘04

‘05

‘06

‘07

‘08

9.5

‘09

8.8

8.8

8.5

‘10

‘11

‘12 46

Monetary Policy Canadians continue to benefit from record-low interest rates thanks to continuing supportive monetary policy.

12.1

13.4 Long-Term Average = 9.8%

11.1 9.5

9.5 9.2 8.8

7.9

7.1 6.9 7.6

8.4

7.4 7.0

6.4 6.2 6.0

7.1 7.1 6.7

5.6 5.6 5.4 5.2

‘89 ‘90 ‘91 ‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Source: Bank of Canada

47

Rising Household Debt A major concern in Canada is the steadily rising household debt, which surpassed that of the United States in 2012.

170% 160%

140% 120% 100%

U.K.

U.S. Canada 1980

1984

Source: Bank of Canada Review; Winter 2011-2012 Crawford, Faruqui

80%

Europe 1988

1992

1996

2000

2004

2008

60% 2011 48

Strong Currency Persistent strength of the Canadian dollar will continue to hinder Canada’s competitiveness in the global market, restraining its exports and widening the trade deficit. However, it is a signal of the strength of the Canadian economy.

Source: Bank of Canada

2011

1 CAD

= .97 USD

2012

1 CAD

= 1.02 USD

49

Mortgage Regulations Tighten Decrease the maximum (insured by the Housing Corporation) amortization length to 25 years.

- The difference between a 25-year and 30-year amortization can be $200-300 per month. Many prospective home buyers jumped on before the rule took effect.

- Shortening the repayment period decreases the amount of mortgage a family can qualify for. A household income of $75,000 may now qualify for $50,000 less in their mortgage.

- This may discourage homeownership, encourage families to purchase smaller homes, or push back the first-time home buyer age across the country.

Home equity loans can have a maximum LTV of 80%, down from 85%.

Mortgages must be insured if the down payment is less than 20%.

The limits are now back to where they were in 2006 before the government modified the rules so more households could qualify.

This new regulation went into effect July 9.

Source: RBC

50

Luxury Real Estate

The Wealthy Inventory

Days on Market

List-to-Sell Opportunity

51

The World’s Wealthy The world’s population of high net worth individuals (HNWI) remained fairly consistent with the previous year’s numbers and are up from 2006.

Year

HNWI in US (in Thousands)

HNWI in Canada (in Thousands)

Global HNWI (in Millions)

Wealth of Global HNWIs (in US$ Trillions)

2005 2006 2007 2008 2009 2010 2011

2,669 2,920 3,019 2,460 2,866 3,104 3,068

232 248 281 231 251 282 280

8.8 9.5 10.1 8.6 10.0 10.9 11

$33.4 $37.2 $40.7 $32.8 $39.0 $42.7 $42.0

2006 - 2011

5.1% increase

12.9% increase

15.8% increase

12.9% increase

Sources: Merrill Lynch Global Wealth Management and Capgemini

52

Allocation of Financial Assets Real estate continues to make up a sizable portion of HNWIs’ investment portfolio.

Year

Real Estate

Cash/ Deposits

Fixed Income

Equities

Alternative Investments

2004

16%

13%

24%

28%

19%

2005

16%

13%

21%

30%

20%

2006

24%

14%

21%

31%

10%

2007

14%

17%

27%

33%

9%

2008

18%

21%

29%

25%

7%

2009

18%

17%

31%

29%

6%

2010

19%

14%

29%

33%

5%

2012*

15%

11%

29%

38%

8%

Sources: Merrill Lynch Global Wealth Management and Capgemini * No data for 2011, 2012 is a projection.

53

Months Supply of Inventory Months supply of inventory dropped at the beginning of 2012 and has remained fairly stable throughout the year. Luxury ended with 10.9 months supply, down 72% from December 2008.

Luxury = Buyer’s Market

Move Up = Balanced Market

Starter = Seller’s Market

Months Supply

39.4

22.9

19.2 14.5

12.9

6 Dec '08

11.3

10.9

5.6

6.7

7.8

6.3 3.9

Dec '09 Luxury

Sample of MLS data from 10 cities

8.4

11.6 8.2

Move Up

Dec '10 Starter

Dec '11 Balanced (6 months)

Dec '12 54

Days on Market Days on market continues to be more volatile as the price point increases.

181 160 128

121

126 109

123

101

92

107

90

Dec '08

82 Dec '09 Luxury

Sample of MLS data from 10 cities

Move Up

Dec '10 Starter

Dec '11 Balanced (6 months)

93 82 80 Dec '12 55

List-to-Sell List-to-sell ratios hit a 4-year high during 2012. There continues to be more opportunity to negotiate a bargain in luxury price points. The gap between luxury and move up tightened in mid-2012 and has loosened since.

95% 94% 91%

89% 88% 86%

Dec '08 Sample of MLS data from 10 cities

Dec '09 Move Up

Dec '10 Starter

Dec '11 Luxury

Dec '12 56

Opportunities Move-up buyers who can sell in a balanced market and buy in a buyer’s market.

International buyers who are cash rich and with a strong appetite for U.S. luxury properties.

Investors who stand ready to take advantage of undervalued properties—most are focused on the starter price points but there are bigger discounts at the luxury level.

57

Commercial Real Estate

Economic

Industry

Government

58

Job Growth

Monthly

After falling dramatically from 2008-2009, job growth has followed a fairly normal positive trend from 2010 onward.

Net Jobs Added, in Thousands

675

516

507

450

262

196

225

0 -225 -450

-302

-331

-675 -900

-803

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: REIS

59

Vacancy Rates 17.6%

17%

11.7%

10.8% 9.1% 7.9% 7.1% 3.8% 1999

8.3% 7.9%

8%

7.3%

10.7%

11%

10.1%

6.9%

6.4%

4.5%

3.2% 2000

2001

Office Source: REIS

17%

2002

2003

2004

Retail

2005

2006

2007

2008

Industrial

2009

2010

2011

2012

Apt 60

Vacancy Rates By Commercial Real Estate Sector CANADA Sector

Source: CBRE

2010

2011

2012

Office

9.4%

8.4%

8.3%

Industrial

7.4%

6.3%

6.3%

Retail

4.2%

3.9%

4.9%

Multi-Family

2.6%

2.2%

2.2%

61

Loan Delinquency Rate

Quarterly, 1991-2012

Commercial Real Estate Loan Delinquency Rate

After a period of low delinquency rates from 1997-2008, rates spiked in 2011 but have been steadily decreasing since.

12.06

Jan ‘91 Source: REIS

8.78

4.56 1.06 Jan ‘93

Jan ‘95

Jan ‘97

Jan ‘99

Jan ‘01

Jan ‘03

Jan ‘05

Jan ‘07

Jan ‘09

Jan ‘11

Jul ‘12 62

Commercial Property Price Index Commercial Property Price Index, 2000=100

From November 2011-2012, prices for apartments grew by 10.6%, offices in a central business district grew by 18.1%, industrial grew 3.4%, while retail fell by 4.9% and offices in suburban areas fell by 7.4%.

187 186 165

200 150

169 146

100

102 50 0 2000

2001

2002

Apartment Source: REIS

2003

2004

2005

2006

2007

Commercial Price Index 2000=100 All Properties

2008

2009

2010

2011

2012

Core Commercial All Properties Excluding Apartments 63

How Do We Recover?

Four Steps to Recovery

64

Four Steps to Housing Recovery

65

What Can NAR Tell Us?

Buyers

Sellers

66

First-Time Home Buyers 47% 42%

2001

40%

40%

40%

2003

2004

2005

Source: NAR Profile of Home Buyers and Sellers

36%

2006

39%

2007

50%

41%

2008

37%

2009

2010

2011

39%

2012

67

Primary Reason for Purchasing All Buyers Desire to own a home Desire for larger home Job-related relocation or move Change in family situation Affordability of homes Desire for a home in a better area Desire to be closer to family/friends Desire to be closer to job/school/transit Desire for smaller home Retirement Establish household Home buyer tax credit Source: NAR Profile of Home Buyers and Sellers

2005

2011

2012

39% 20 11 * * * 8 * 6 3 * *

27% 10 10 8 8 5 7 4 4 5 2 --

30% 11 9 8 7 6 6 4 4 4 2 -68

Tenure in Previous Home 2011

2012

4%

3%

2 to 3 years

8

7

4 to 5 years

13

12

6 to 7 years

16

15

8 to 10 years

17

18

11 to 15 years

18

19

16 to 20 years

9

9

21 years or more

15

16

Median

9

9

1 year or less

Source: NAR Profile of Home Buyers and Sellers

Only 10% buy again in less than 4 years.

69

Buyer’s Expected Tenure 2011

2012

1%

1%

2 to 3 years

2

2

4 to 5 years

8

7

6 to 7 years

2

2

8 to 10 years

14

13

11 to 15 years

5

6

16 to 20 years

27

26

Don’t know

41

43

Median

15

15

1 year or less

Buyers expect to stay almost twice as long as they actually do. Stay in touch so that even if your client’s move is unexpected, you are top of mind.

Source: NAR Profile of Home Buyers and Sellers

70

First Step in Buying Process All Buyers 2011 2012 Looked online for properties for sale

35%

41%

Contacted a real estate agent

21

18

Looked online for information about the buying process

10

11

Drove by homes/neighborhoods

8

8

Contacted a bank or mortgage lender

7

6

Talked with a friend or relative about buying process

7

6

Visited open houses

4

3

Looked in newspapers, magazines, or home-buying guides

2

1

Attended a home-buying seminar

2

1

Contacted builder/visited builder models

2

1

Source: NAR Profile of Home Buyers and Sellers

71

Weeks in Home Search

7

8

8

8

8

8

10

12

12

12

12

2001

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

The home search length is usually lower during a seller’s market when buyers need to move quickly.

Source: NAR Profile of Home Buyers and Sellers

72

Info Sources Buyers Use 2011

2012

88%

90%

Real estate agent

87

87

Yard sign

55

53

Open house

45

45

Print newspaper advertisement

30

27

Home book or magazine

19

18

Home builder

16

17

Television

4

5

Billboard

4

5

Relocation company

4

4

Internet

Real estate-related Google searches have grown 253% in the past four years.

Sources: NAR Profile of Home Buyers and Sellers, The Digital House Hunt

73

Where Buyers Found the Home They Purchased 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Internet

8%

11%

15%

24%

24%

29%

32%

36%

37%

40%

47%

Real estate agent

48

41

38

36

36

34

34

36

38

35

33

Yard sign/Open house sign

15

16

16

15

15

14

15

12

11

11

9

Friend, relative, or neighbor

8

7

7

7

8

8

7

6

6

6

5

Home builder or their agent Directly from sellers/knew the sellers Print newspaper advertisement

3

7

7

7

8

8

7

5

4

5

4

4

4

5

3

3

3

2

2

2

2

1

7

7

5

5

5

3

3

2

2

2

1

Home book or magazine

2

1

2

1

1

1

1

*

*

*

*

Other

3

6

4

--

--

--

--

--

--

--

--

Source: NAR Profile of Home Buyers and Sellers

74

Where Buyers Search At Home Waiting in Line At Work

77% 28%

Yes

31%

Yes

No

Yes

23%

72% No

69% No

36% of new home shoppers used their mobile device to research while watching TV. Sources: NAR 2012 Profile of Home Buyers and Sellers, Google

Yes No 75

Value of Website Features Very Useful

Somewhat Useful

Not Useful

Did Not Use / Not Avail

84%

14%

1%

1%

Detailed information about properties for sale

79

19

*

1

Virtual tours

45

33

10

12

Real estate agent contact info

44

34

13

10

Interactive maps

41

34

11

15

Neighborhood information

34

44

12

9

Detailed information about recently sold properties

33

41

15

11

Pending sales/Contract status

30

35

19

17

Information about upcoming open houses

20

31

25

24

Photos

69% of home shoppers who take action on a real estate website begin their search with a local term.

Sources: NAR Profile of Home Buyers and Sellers, The Digital House Hunt

76

Length of Search Process Expect buyers to have done some research online before contacting you. 40% will have researched up to three months first. 1 in 4 will take action the same day they begin researching online.

Buyers who used agent

3

9

First-time buyers

3

9

Repeat buyers

3 Weeks Searched without Agent

7 Weeks Searched with Agent

This 3 week window is the time to reach buyers online. 78% of new home buyers visit 3+ sites before taking action.

Sources: NAR Profile of Home Buyers and Sellers, The Digital House Hunt

77

What Buyers Use Video For 86% 70% 54% 38%

Find out more about Tour inside home a specific community Sources: NAR The Digital House Hunt

Obtain general information

30%

24%

Understand specific Watch testimonial Watch instructional features videos 78

Websites Used in Home Search 2005

2011

2012

50%

56%

54%

REALTOR.com

54

45

51

Real estate agent website

31

46

47

Real estate company website

38

40

39

Other website with real estate listings

11

38

27

For-sale-by-owner website

*

14

13

Newspaper website

15

6

6

Real estate magazine website

6

4

4

Video hosting websites (e.g.,YouTube, etc.)

*

1

2

Social networking websites (e.g., Facebook, etc.)

*

1

1

Multiple Listing Service (MLS) website

Home buyer browsers will perform an average of 11 searches prior to taking action on a real estate website.

Sources: NAR Profile of Home Buyers and Sellers, The Digital House Hunt

79

Method of Home Purchase 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Through a real estate agent or broker

69%

75%

77%

77%

77%

79%

81%

77%

83%

89%

89%

Directly from builder or builder’s agent

15

14

12

12

13

12

10

8

6

7

6

Directly from the previous owner

15

9

9

9

9

7

6

5

5

4

5

Just because buyers are using the internet more doesn’t mean they’re not relying on you. In fact, the number of buyers using an agent remains at a ten year high. To keep it that way, understand your value proposition and be able to communicate it.

Source: NAR Profile of Home Buyers and Sellers

80

Buyer Representation Agreement Buyer representation agreements are down compared to last year. These are a no-brainer risk mitigator for agents wanting to protect their time and income.

2011

2012

42%

40%

Yes, an oral arrangement

18

19

No

29

28

Don’t know

11

13

Yes, a written arrangement

Source: NAR Profile of Home Buyers and Sellers

81

What Buyers Want Most from Agent 50%

Help finding the right home to purchase Help with price negotiations

12%

Help negotiate terms

12% 8%

Tell me price of comparable home sales

7%

Help with paperwork Tell me how much I can afford Help with financing

4% 3%

Tell me about neighborhood or area

2%

Other

2%

Source: NAR Profile of Home Buyers and Sellers

82

How Buyers Found Their Agent 2005

2011

2012

44%

41%

40%

Internet website

7

9

11

Used agent previously to buy or sell a home

11

9

10

Visited an open house and met agent

7

7

6

Saw contact information on for sale/open house sign

6

6

6

Personal contact by agent (telephone, email, etc.)

3

3

4

Referred through employer or relocation company

4

4

4

Walked into or called office and agent was on duty

4

4

3

Newspaper,Yellow Pages, or home book ad

2

1

*

Direct mail (newsletter, flier, postcard, etc.)

1

--

*

Other

6

10

10

Referred by (or is) a friend, neighbor, or relative

The data is clear. Staying in relationship with your database is the #1 way to get more business.

Source: NAR Profile of Home Buyers and Sellers, KWRI Surveys

83

Interviews by Buyers 2002

2005

2009

2010

2011

2012

One

59%

64%

66%

64%

65%

66%

Two

22

20

19

21

20

20

Three

19

10

10

10

10

8

Four or more

--

5

6

6

6

6

2 out of 3 times if you are not the first one they call there is no possibility to get their business.

Source: NAR Profile of Home Buyers and Sellers

84

Most Important Factors for Buyers The most important factors for buyers when choosing an agent 24%

Honest and trustworthy

21%

Reputation

15%

Agent is family or friend

12%

Knowledge of neighborhood

9%

Caring and good listener

6%

Timely responses Assocation with company

3%

100% accessable (Tech)

3%

Designations Other Source: NAR Profile of Home Buyers and Sellers

2% 4% 85

Home as Financial Investment 2005

2010

2011

2012

Good financial investment

94%

85%

78%

78%

- Better than stocks

*

47

45

46

- About as good as stocks

*

30

24

23

- Not as good as stocks

*

9

9

9

Not a good financial investment

1

4

8

6

Don’t know

5

11

14

16

Source: NAR Profile of Home Buyers and Sellers

86

Buyer: Repeat and Referrals?

Would seller work with agent again or refer them to friends?

74%

15% Definitely Source: NAR Profile of Home Buyers and Sellers

Probably

5%

4%

2%

Probably not

Definitely not

Don’t know 87

Method Sellers Used to Find Agent Referred by (or is) a friend, neighbor, or relative Used agent previously to buy or sell a home Personal contact by agent (telephone, email, etc.)

Visited an open house and met agent Referred by another real estate agent or broker Saw contact information on for sale/open house sign Referred through employer or relocation company Internet website Walked into or called office and agent was on duty Direct mail (newsletter, flier, postcard, etc.)

Newspaper,Yellow Pages, or home book ad Advertising specialty (calendar, magnet, etc.)

Other Source: NAR Profile of Home Buyers and Sellers

2005

2011

2012

43% 28 5 4 3 4 3 2 2 3 2 * *

39% 22 4 4 4 4 5 3 1 2 1 * 11

38% 23 5 4 4 4 4 3 2 2 1 1 11 88

Seller Interviews Number of agents sellers contacted before deciding who to list with.

2002

2010

2011

2012

One

76%

66%

66%

65%

Two

16

19

16

20

Three

8

10

13

11

Four

--

3

3

3

Five or more

--

3

2

2

Source: NAR Profile of Home Buyers and Sellers

89

What Sellers Want Most from Agent 2005

2010

2011

2012

Help sell the home within specific time frame

27%

19%

19%

22%

Help seller market home to potential buyers

*

20

24

21

Help find a buyer for home

28

21

19

19

Help price home competitively

17

23

20

18

Help seller find ways to fix up home to sell it for more

12

7

9

10

Help with negotiations and dealing with buyers

5

5

5

5

Help with paperwork/inspections/preparing for settlement

7

4

3

3

Help seller see homes available to purchase

3

1

2

1

Source: NAR Profile of Home Buyers and Sellers

90

Most Important Factors for Sellers 2005

2010

2011

2012

57%

35%

38%

37%

Agent is honest and trustworthy

*

23

20

19

Agent is friend or family member

*

16

18

13

Agent’s knowledge of the neighborhood

17

12

11

12

Agent has caring personality/good listener

*

4

4

4

Agent’s association with a particular firm

6

4

5

4

Professional designations held by agent

3

1

1

1

Other

17

4

4

5

Reputation of agent

Source: NAR Profile of Home Buyers and Sellers

91

Compensation Negotiations 2011

2012

43%

43%

Client brought up the topic and the real estate agent was willing to negotiate their commission or fee

26

22

Client did not know commissions and fees could be negotiated

13

15

Client did know commissions and fees could be negotiated but did not bring up the topic

8

11

Client brought up the topic and the real estate agent was not willing to negotiate their commission or fee

10

9

Real estate agent initiated discussion of compensation

Source: NAR Profile of Home Buyers and Sellers

92

Seller: Repeats and Referrals?

Would seller work with agent again or refer them to friends?

66%

18%

Definitely

Probably

7%

7%

Probably not

Definitely not

2% Don’t know

74% of buyers would. Don’t forget to call your past buyer and seller clients to ask for referrals.

Source: NAR Profile of Home Buyers and Sellers

93

Method Used To Sell Home 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Sold home using an agent or broker

79%

83%

82%

85%

84%

85%

84%

85%

88%

87%

88%

For-sale-by-owner (FSBO)

13

14

14

13

12

12

13

11

9

10

9

Sold to home-buying company

1

1

1

1

1

1

1

1

1

1

1

Other

7

3

3

2

3

2

2

3

3

2

2

Source: NAR Profile of Home Buyers and Sellers

94

For Sale By Owners (FSBOs) 14%

14%

13%

13%

13% 12%

12% 11% 10% 9%

2001

2003

2004

2005

2006

2007

2008

2009

2010

9%

2011

2012

For Sale By Owner (FSBO) A shifting market may mean FSBOs will increase and expireds will decrease. Take note if expireds are a big part of your lead gen strategy.

Source: NAR Profile of Home Buyers and Sellers

95

Incentives Offered to Attract Buyers 2011

2012

59%

60%

Home warranty policies

23

22

Assistance with closing costs

20

17

Credit toward remodeling or repairs

7

7

Other incentives, such as a car, flat-screen TV, etc.

3

3

Assistance with condo association fees

1

*

Other

4

5

None

Source: NAR Profile of Home Buyers and Sellers

96

KW Research

MLS Study on Discounters

The State of our Commission

97

MLS Study: Percentage of Expired Listings 33% 27%

26% 21%

19%

18%

17%

14%

13% 12% 12%

11% 10%

10% 6% 6%

2005

2006

2007 Full Service

Source: KW Research

2008

2009

2010

2011

2012

Limited Service 98

MLS Study: Average Price 327.9 323.4

340.3

339.6 306.1

325.0 297.8

307.0

292.8

232.4

230.8

236.6 234.4

215.4

214.9 185.5

2005

2006

2007

2008

Full-Service Average Price (in Thousands of Dollars) Source: KW Research

2009

2010

2011

2012

Limited-Service Average Price (in Thousands of Dollars) 99

MLS Study: Average Days on Market 91 87

86 80

82

81 76

67

77

74

72 68

64

64 57

2005 Source: KW Research

2006

2007 Full Service

2008

2009

2010 Limited Service

2011

58

2012 100

MLS Study: List to Sell 99% 98%

98% 98%

98% 98% 97% 97% 96% 95% 95% 94% 94% 94% 94%

2005

2006

2007 Full Service

Source: KW Research

2008

2009

2010

2011

94% 2012

Limited Service 101

MLS Study: Market Share 3.78%

4.04% 2.65%

2005

2006

2007

2.17%

2008

2.07%

2009

2.43%

2010

1.43%

1.3%

2011

2012

Limited-Service Broker Market Share Source: KW Research

102

Commission: Total Median Percentage 5.67% 5.59% 5.50% 5.42% 5.33% 5.19%

2002 Source: KW Research

5.21%

2003

5.20%

2004

5.12%

5.10%

5.09%

2005

2006

2007

2008

2009

2010

2011

2012 103

Commission: Median Seller Percentage 2.63%

2.64%

2011

2012

2.59% 2.56% 2.50% 2.42%

2002 Source: KW Research

2.44%

2003

2.43%

2004

2.40%

2.40%

2.40%

2005

2006

2007

2008

2009

2010

104

Commission: Median Seller Amount $4,650 $3,575

2002 Source: KW Research

$3,872

$4,756

$4,780

$4,200

$4,550

$4,345

$4,471

$4,524

2010

2011

2012

$3,450

2003

2004

2005

2006

2007

2008

2009

105

Commission: Median Buyer Percentage 3.00%

2.83% 2.77%

2002

Source: KW Research

2.77%

2003

2.86%

2.87%

2010

2011

2.83%

2.78%

2004

2.71%

2.70%

2005

2006

2.68%

2007

2008

2009

2012

106

Commission: Median Buyer Amount

$4,128

2002 Source: KW Research

$4,410

2003

$4,730

2004

$5,155

$5,325

$5,350

$5,145

$5,145

$5,107

2010

2011

$4,650

2005

2006

2007

2008

2009

$5,413

2012 107

What Do You Do Now?

Up Next

108

Challenges in Markets Shifting Up - Competition with less skilled agents - Competition with sellers窶認SBOs - Commission pressure

109

The Foundation Always Stays the Same

List

ings

ge era Lev Leads

Source: The Millionaire Real Estate Agent

110

?lf!Y_

KELLER WILLIAMS@ REALT'l'