(24)	Fair Value of Financial Assets and Liabilities

U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

•

Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

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Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

•

Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

As required by U.S. GAAP guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table sets forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance at March 31, 2018 and December 31, 2017 (in thousands):

	As of March 31, 2018
	Level 1		Level 2		Level 3			Total
Assets:
Marketable securities	$	8,622	$	—	$	—		$	8,622
Loans held for sale		—		965,639		—			965,639
Rate lock commitments		—		—		8,750			8,750
Forwards		—		—		9,687			9,687
Total assets	$	8,622	$	965,639	$	18,437	#	$	992,698
Liabilities:
Accounts payable, accrued expenses and other liabilities—contingent consideration	$	—	$	—	$	23,087		$	23,087
Rate lock commitments		—		—		8,980			8,980
Forwards		—		—		2,421			2,421
Total Liabilities	$	—	$	—	$	34,488		$	34,488

	As of December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Marketable securities	$	57,623	$	—	$	—	$	57,623
Loans held for sale		—		362,635		—		362,635
Rate lock commitments		—		—		2,923		2,923
Forwards		—		—		3,753		3,753
Total assets	$	57,623	$	362,635	$	6,676	$	426,934
Liabilities:
Accounts payable, accrued expenses and other liabilities—contingent consideration	$	—	$	—	$	23,711	$	23,711
Rate lock commitments		—		—		2,390		2,390
Forwards		—		—		657		657
Total Liabilities	$	—	$	—	$	26,758	$	26,758

There were no transfers among level 1, 2 and level 3 for the three months ended March 31, 2018 and the year ended December 31, 2017.

Derivative instruments are outstanding for short periods of time (generally less than 60 days). A roll forward of derivative instruments and contingent consideration (level 3) that require valuation based upon significant unobservable inputs is presented below (in thousands):

	As of March 31, 2018
	Opening Balance		Total realized and unrealized (gains) losses included in Net income⁽¹⁾		Issuances		Settlements			Closing Balance		Unrealized (gains) losses outstanding as of March 31, 2018
Accounts payable, accrued expenses and other liabilities—contingent consideration	$	23,711	$	134	$	—	$	(758	)	$	23,087	$	134
Rate lock commitments and forwards, net		3,629		7,036		—		(3,629	)		7,036		7,036
	$	27,340	$	7,170	$	—	$	(4,387	)	$	30,123	$	7,170

	As of March 31, 2017
	Opening Balance		Total realized and unrealized (gains) losses included in Net income⁽¹⁾		Issuances		Settlements			Closing Balance		Unrealized (gains) losses outstanding as of March 31, 2017
Accounts payable, accrued expenses and other liabilities—contingent consideration	$	38,713	$	438	$	—	$	(10,153	)	$	28,998	$	438
Rate lock commitments and forwards, net		10,254		2,462		—		(10,254	)		2,462		2,462
	$	48,967	$	2,900	$	—	$	(20,407	)	$	31,460	$	2,900

(1)	Realized losses are reported in “Other income, net” in Newmark’s unaudited condensed consolidated statements of operations.

Quantitative Information About Level 3 Fair Value Measurements

The following tables present quantitative information about the significant unobservable inputs utilized by Newmark in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis:

March 31, 2018
Level 3 assets and liabilities	Assets		Liabilities		Significant Unobservable Inputs
Accounts payable, accrued expenses and other liabilities:
Contingent consideration	$	—	$	23,087	Discount rate—6.6% weighted average rate^(a)
Derivative assets and liabilities:					Financial forecast information
Forward sale contracts	$	9,687	$	2,421	Counterparty credit risk
Rate lock commitments	$	8,750	$	8,980	Counterparty credit risk

December 31, 2017
Level 3 assets and liabilities	Assets		Liabilities		Significant Unobservable Inputs
Accounts payable, accrued expenses and other liabilities:
Contingent consideration	$	—	$	23,711	Discount rate—6.43% weighted average rate^(a)
Derivative assets and liabilities:					Financial forecast information
Forward sale contracts	$	3,753	$	657	Counterparty credit risk
Rate lock commitments	$	2,923	$	2,390	Counterparty credit risk

(a)	Newmark’s estimate of contingent consideration as of March 31, 2018 and December 31, 2017 was based on the acquired business’ projected future financial performance, including revenues.

Valuation Processes - Level 3 Measurements

Both the rate lock commitments to borrowers and the forward sale contracts to investors are derivatives and, accordingly, are marked to fair value through Newmark’s unaudited condensed consolidated statements of operations. The fair value of Newmark’s rate lock commitments to borrowers and loans held for sale and the related input levels includes, as applicable:

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The assumed gain/loss of the expected loan sale to the investor, net of employee benefits;

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The expected net future cash flows associate with servicing the loan;

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The effects of interest rate movements between the date of the rate lock and the balance sheet date; and

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The nonperformance risk of both the counterparty and Newmark.

The fair value of Newmark’s forward sales contracts to investors considers effects of interest rate movements between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

The fair value of Newmark’s rate lock commitments and forward sale contracts is adjusted to reflect the risk that the agreement will not be fulfilled. Newmark’s exposure to nonperformance in rate lock and forward sale contracts is represented by the contractual amount of those instruments. Given the credit quality of Newmark’s counterparties, the short duration of rate lock commitments and forward sales contracts, and Newmark’s historical experience with the agreements, management does not believe the risk of nonperformance by Newmark’s counterparties to be significant.

Sensitivity Analysis - Level 3 Measurements

As of March 31, 2018 and December 31, 2017, the present value of expected payments related to Newmark’s contingent consideration was $26.7 million and $23.7 million, respectively (Note 28- Commitments and Contingencies). Valuations for contingent consideration are conducted by Newmark. Each reporting period, Newmark updates unobservable inputs. Newmark has a formal process to review changes in fair value for satisfactory explanation.