Fair Value Disclosures

9 Months Ended

Sep. 30, 2019

12. Fair Value Disclosures

Accounting Standards Codification Topic 820, Fair Value Measurement, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

The following table presents carrying values and estimated fair values of financial instruments (in thousands):


		September 30, 2019				December 31, 2018

	Hierarchy	Carrying		Fair Value		Carrying		Fair Value
Secured notes receivable⁽¹⁾	Level 2	$	2,632	$	2,577	$	4,947	$	4,830
Mortgage loans held for sale⁽²⁾	Level 2	$	95,321	$	95,321	$	112,394	$	112,394
Derivative assets⁽³⁾	Level 2	$	1,593	$	1,593	$	726	$	726

6.750% senior notes^{(4) (5)}	Level 2	$	494,178	$	535,550	$	—	$	—
6.875% senior notes^{(4) (5)}	Level 2	$	—	$	—	$	380,567	$	372,488
5.875 % senior notes ^{(4) (5)}	Level 2	$	395,944	$	413,000	$	395,415	$	356,000
3.278% insurance premium notes⁽⁶⁾	Level 2	$	6,150	$	6,150	$	6,475	$	6,475
Revolving line of credit⁽⁶⁾	Level 3	$	278,800	$	278,800	$	202,500	$	202,500
Other financing obligation⁽⁶⁾	Level 2	$	—	$	—	$	2,320	$	2,320
Mortgage repurchase facilities⁽⁶⁾	Level 2	$	77,798	$	77,798	$	104,555	$	104,555

⁽¹⁾

Estimated fair value of the secured notes receivable was based on cash flow models discounted at market interest rates which considered the underlying risks of the note.

⁽²⁾The mortgage loans held for sale are carried at fair value, which is based on quoted market prices for committed mortgage loans.

⁽³⁾Derivative instruments are carried at fair value and based on market prices for similar instruments. Changes in fair value are reflected in financial services revenue on the condensed consolidated statement of operations. As of September 30, 2019 and December 31, 2018, we had immaterial amounts of derivative liabilities which are presented within accrued expenses and other liabilities on the condensed consolidated balance sheets. Refer to Note 5 – financial services for further information regarding our derivative instruments.

⁽⁴⁾Estimated fair value of the senior notes is based on recent trading activity in inactive markets.

⁽⁵⁾Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of September 30, 2019, these amounts totaled $5.8 million and $4.1 million for the 6.750% senior notes and 5.875% senior notes, respectively. As of December 31, 2018, these amounts totaled $4.9 million and $4.6 million for the 6.875% senior notes and 5.875% senior notes, respectively.

⁽⁶⁾Carrying amount approximates fair value due to short-term nature and interest rate terms.

The carrying amount of cash and cash equivalents approximates fair value. Non-financial assets and liabilities are measured at fair value when acquired in a business combination. Long-lived assets determined to be impaired are measured at fair value.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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