A Modern Day Chicken Little Tale

1
A Modern Day Chicken Little Tale

• Impact of the Softening Real Estate Market on
  Corporate Relocation Programs

2
Chicken Little Gets the Call

• Once upon a time there was a dear little
  Relocation Counselor named Chicken Little
• One morning as she was working in her cubicle,
  she received a call from a transferee who claimed
  that his home was not selling
• As Chicken Little talked to other relocation
  professionals, she realized that throughout the
  kingdom there were
• Decreasing traffic
• Decreasing home prices
• Increasing incentives
• Oh dear me! she cried, homes are not selling!
  I must go and tell the Queen, and quickly she
  headed off to share the news

3
Early Indicators

• In early 3Q of 2006, Bank of America Relocation
  Counselors began sharing anecdotal stories about
  Associates reaching out for additional assistance
  in selling their homes
• We also began seeing significant increases in
  exception requests for more temporary living,
  duplicate housing additional household goods
  storage days
• As we started looking at our hard data we noted
  that our Days on Market (DOM) was rising
• In 2005 our DOM average was 23 Days
• Through 3Q 2006 the average increased to 47 DOM
• And by 4Q 2006, the average hit 82 DOM
• Not only were we experiencing longer Days on
  Market, but more of our active inventory was
  becoming aged

4
Increasing Days on Market

• By the Fall of 2006 we were tracking over two
  thirds of our Associates with BVO homesale
  eligibility experiencing DOM in excess of 90
  Days.
• Half of this same group had their homes on the
  market for over half a year
• As of Monday, 63.6 are still in excess of 90 DOM
• 35.2 have had their home on the market for
  180DOM
• The Associates with their homes on the market for
  over 180 days also have borrowed Millions in
  equity advances from the Bank
• And for one of the first times, we were having
  Associates threatening to default on these equity
  advances due to their inability to sell their
  home and/ or carry two mortgage payments
• A popular pastime with our team was having
  conversations with our HR partners trying to
  explain the difference between our Loss on Sale
  benefit and the Associates perceived Loss on
  Equity

5
Is it a Loss or a Gain

• For Example
• Joe Transferee paid 500,000 for home in Las
  Vegas in May 2003, putting down 20, obtaining a
  mortgage for 400,000
• In May 2005, Joe is able to obtain a mortgage
  appraisal valuing his home at an appreciated
  value of 820,000
• Joe adds a HELOC with a bit higher LTV ratio
  (90) to pull out even more funds mortgage liens
  now total 738,000
• December 2006, Joe is offered a position in
  Charlotte and after marketing his home secures an
  offer for 700,000
• Did Joe Gain 200,000 on the sale of his home? Or
• Did Joe Lose 38,000 on the sale of his home?

6
The Sky is Falling

• Research provided by Banc of America Securities
  for their investor population presented
  additional snapshots on the conditions of real
  estate markets around the country
• Greatest deterioration seen in Arizona and
  Florida D.C., Seattle, and Texas show most
  improvement
• Rate of price declines unchanged from January
• Incentives index points to higher incentives
• Inventory levels worsen, likely to pressure home
  prices
• Time needed to sell a home lengthens further, a
  leading indicator of pricing trends
• BofA Monthly Real Estate Agent Survey March 2,
  2007

7
Redesigned Relo Policy

• Effective April 1 Bank of America will be
  converting our 400-500 BVO eligible Associates to
  a Delayed Appraisal homesale program
• We will be ordering appraisals up front in the
  process to establish both the Equity Advance
  basis and marketing guidelines
• As of today, Associates must list within 105 of
  the average of the two BMAs Most Likely Sale
  Price
• At Day 60 and every 30 days thereafter, the
  Associate must comply with new list caps driven
  by the appraisal values
• At Day 120, we will update the initial appraisals
• At Day 135, we will extend a buyout to the
  Associate that they can accept between Days 165
  and Day 180
• If the home is not sold by Day 180, the Associate
  can choose to market their home outside of our
  homesale program and be eligible for direct
  reimbursement of sellers closing costs (but no
  tax protection)

8
Time for a Change

• Coca Cola Bottling Co. Consolidated
• 6,000 employees
• 50 to 75 moves annually
• Like Bank of America, we have been witnessing
• Increased costs
• Longer days on market
• Frustrated employees
• Financial and Family Hardships
• Our experience with our Delayed
  Appraisal/Guaranteed Buyout Programs resulted in
  Coca Cola acquiring an average of 39 of employee
  homes annually over the past 5 years

9
A Proactive Approach

• Budget constraints dictated the need for Policy
  Changes
• Proactive Approach
• Employee Relocation Self- Assessment Form/Are you
  Relocate-able?
• Questionnaire addresses the following
  Considerations
• Timing
• Housing
• Financial
• Personal/Family
• Posted on our CAPS System (Consolidateds
  Application Posting System)
• Internal Employees must complete prior to posting
  for a position

10
Redesigned Relo Policy

• Redesigned Policy BVO with a Buyout
• Two BMAs
• Appraisals after 60 days
• Sales Incentive Bonus
• 2 Sales Incentive Initial 60 days
• 1 Sales Incentive After Appraisals
• Average of Appraisals Established Value
• Accept offer within 97 of EV/Company absorbs 3
  loss
• 120 days
• Inspections
• Buyout after 150 days/ 90 of appraisal average

11
New Construction Competition

• Competing with New Construction?
• Match Builder Incentives
• Pay 1 year HOA Dues
• Closing Cost Assistance
• Lender 2/1 Buy down
• Example Match builder buy down on 525,000
  home/cost of 9,318.00
• Enhance Commissions/Bonus
• Additional Assistance Available only on an
  Exception Basis

12
Buyout Elimination

• Why Eliminate Guaranteed Buy Out?
• Reorganization in Fall 2005
• 12 homes in inventory
• 1 in Panama City
• BMA 320,000/listed 10/17/05 for 320,000
• 60 days/Appraisals 290,000/289,000
• Purchased 12/30/05 - 289,500
• Repaired/Painted/Reduced/Reduced/Reduced
  (264,500)
• Auction 8/1/06
• Sold 9/14/06 - 240,000
• I Wish We Had Contacted Williams Williams
  Earlier

13
Asset Management Challenges

• Organizations are changing their model of real
  estate disposition to mitigate their losses on
  these non-earning assets and stem the
  ever-increasing costs of vacant properties
• Current Challenges
• Inability to accurately forecast expenses
• Inability to accurately predict market value
• Potential negative financial and/or liability
  exposure
• Inability to anticipate changing market cycles
• Ever-increasing market supply
• Ever-increasing days on market

14
Auction Facts

• Extensive growth for the auction industry in 2006
  with a 7.1 percent increase over 2005 in gross
  revenue, translating into 257.2 billion in total
  revenue generated (1)
• EBay's 2005 gross value of goods and services
  sold 44.3 Billion (2)
• 16 billion gross auction revenue for real estate
  in 2006 (1)
• 12.5 increase in 2006 residential real estate
  gross auction revenues (1)
• 1 in 3 properties will be sold by auction in the
  near future, according to the National
  Association of Realtors (3)

1.Morpace International Global Market Research
Firm on behalf of National Auctioneers
Association 2006 2. eBay, Inc. 2005 Financial
Results 3. National Association of Realtors
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The Sky May Not be Falling

• Price Certain / Time Uncertain (traditional real
  estate sales)
• Price Uncertain/ Time Certain (auction
  marketing)
• In theory, 2 supports goals of Guaranteed Offer
  process in addition to inventory disposition

16
Strategic Considerations

• Auction Companies
• Buyers Premium vs. Seller Commission
• Local vs. National
• Timelines
• Absolute Sales vs. Seller Reserve
• New Home Sales Problematic
• Types of Properties to Consider
• Unique Assets
• Difficult to Comp
• Understand net present value and
• Market value is what a ready, willing able
  buyer is willing to pay and what a motivated
  seller is willing to accept

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