Fair Value Disclosures

Financial Instruments

A summary of assets and (liabilities) at October 31, 2017 and 2016, related to our financial instruments, measured at fair value on a recurring basis, is set forth below (amounts in thousands):



		Fair value
Financial Instrument	Fair value hierarchy	October 31, 2017			October 31, 2016
Residential Mortgage Loans Held for Sale	Level 2	$	132,922		$	248,601
Forward Loan Commitments – Residential Mortgage Loans Held for Sale	Level 2	$	861		$	1,390
Interest Rate Lock Commitments (“IRLCs”)	Level 2	$	(1,293	)	$	(921	)
Forward Loan Commitments – IRLCs	Level 2	$	1,293		$	921

At October 31, 2017 and 2016, the carrying value of cash and cash equivalents and restricted cash and investments approximated fair value.

Mortgage Loans Held for Sale

At the end of the reporting period, we determine the fair value of our mortgage loans held for sale and the forward loan commitments we have entered into as a hedge against the interest rate risk of our mortgage loans and commitments using the market approach to determine fair value. The evaluation is based on the current market pricing of mortgage loans with similar terms and values as of the reporting date and the application of such pricing to the mortgage loan portfolio. We recognize the difference between the fair value and the unpaid principal balance of mortgage loans held for sale as a gain or loss. In addition, we recognize the fair value of our forward loan commitments as a gain or loss. These gains and losses are included in “Other income – net” in our Consolidated Statements of Operations and Comprehensive Income. Interest income on mortgage loans held for sale is calculated based upon the stated interest rate of each loan and is also included in “Other income – net.”

The table below provides, for the periods indicated, the aggregate unpaid principal and fair value of mortgage loans held for sale as of the date indicated (amounts in thousands):



At October 31,	Aggregate unpaid principal balance		Fair value		Excess
2017	$	131,861	$	132,922	$	1,061
2016	$	246,794	$	248,601	$	1,807

IRLCs represent individual borrower agreements that commit us to lend at a specified price for a specified period as long as there is no violation of any condition established in the commitment contract. These commitments have varying degrees of interest rate risk. We utilize best-efforts forward loan commitments (“Forward Commitments”) to hedge the interest rate risk of the IRLCs and residential mortgage loans held for sale. Forward Commitments represent contracts with third-party investors for the future delivery of loans whereby we agree to make delivery at a specified future date at a specified price. The IRLCs and Forward Commitments are considered derivative financial instruments under ASC 815, “Derivatives and Hedging,” which requires derivative financial instruments to be recorded at fair value. We estimate the fair value of such commitments based on the estimated fair value of the underlying mortgage loan and, in the case of IRLCs, the probability that the mortgage loan will fund within the terms of the IRLC. The fair values of IRLCs and forward loan commitments are included in either “Receivables, prepaid expenses and other assets” or “Accrued expenses” in our Consolidated Balance Sheets, as appropriate. To manage the risk of non-performance of investors regarding the Forward Commitments, we assess the creditworthiness of the investors on a periodic basis.

Inventory

We recognize inventory impairment charges based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. The fair value of the aforementioned inventory was determined using Level 3 criteria. Estimated fair value is primarily determined by discounting the estimated future cash flow of each community. See Note 1, “Significant Accounting Policies - Inventory,” for additional information regarding our methodology on determining fair value. As further discussed in Note 1, determining the fair value of a community’s inventory involves a number of variables, many of which are interrelated. If we used a different input for any of the various unobservable inputs used in our impairment analysis, the results of the analysis may have been different, absent any other changes. The table below summarizes, for the periods indicated, the ranges of certain quantitative unobservable inputs utilized in determining the fair value of impaired communities:



	Selling price per unit ($ in thousands)	Sales pace per year (in units)	Discount rate
Three months ended:
October 31, 2017	467 - 540	12 - 30	16.4%
July 31, 2017	465 - 754	3 - 10	16.5% - 19.5%
April 30, 2017	827 - 856	6 - 11	16.3%
January 31, 2017	692 - 880	4 - 12	16.3%

October 31, 2016	—	—	—
July 31, 2016	—	—	—
April 30, 2016	369 - 394	18 - 23	16.3%
January 31, 2016	—	—	—

The table below provides, for the periods indicated, the number of operating communities that we reviewed for potential impairment, the number of operating communities in which we recognized impairment charges, the amount of impairment charges recognized, and, as of the end of the period indicated, the fair value of those communities, net of impairment charges

($ amounts in thousands):



		Impaired operating communities
Three months ended:	Number of communities tested	Number of communities	Fair value of communities, net of impairment charges		Impairment charges recognized
Fiscal 2017:
January 31	57	2	$	8,372	$	4,000
April 30	46	6	$	25,092	2,935
July 31	53	4	$	5,965	1,360
October 31	51	1	$	6,982	1,500
					$	9,795
Fiscal 2016:
January 31	43	2	$	1,713	$	600
April 30	41	2	$	10,103	6,100
July 31	51	2	$	11,714	1,250
October 31	59	2	$	1,126	415
					$	8,365
Fiscal 2015:
January 31	58	4	$	24,968	$	900
April 30	52	1	$	16,235	11,100
July 31	40	3	$	13,527	6,000
October 31	44	3	$	8,726	4,300
					$	22,300

Debt

The table below provides, as of the dates indicated, the book value and estimated fair value of our debt at October 31, 2017 and 2016 (amounts in thousands):



		2017				2016
	Fair value hierarchy	Book value		Estimated fair value		Book value		Estimated fair value
Loans payable (a)	Level 2	$	639,116	$	639,088	$	872,809	$	870,384
Senior notes (b)	Level 1	2,469,876		2,626,131		2,707,376		2,843,177
Mortgage company loan facility (c)	Level 2	120,145		120,145		210,000		210,000
		$	3,229,137	$	3,385,364	$	3,790,185	$	3,923,561


(a)	The estimated fair value of loans payable was based upon contractual cash flows discounted at interest rates that we believed were available to us for loans with similar terms and remaining maturities as of the applicable valuation date.


(b)	The estimated fair value of our senior notes is based upon their market prices as of the applicable valuation date.


(c)	We believe that the carrying value of our mortgage company loan borrowings approximates their fair value.