UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM l0-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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to

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Commission File No. 1-11278

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THE DEWOLFE COMPANIES, INC.

(Exact name of Registrant as specified in its charter)

MASSACHUSETTS(State or other jurisdiction
incorporation or organization) 80 Hayden Avenue
Lexington, Massachusetts(Address of principal executive offices)

04-2895334(IRS Employer
Identification No.) 02421-7962(Zip Code)


Registrant's telephone number, including area code(781) 863-5858

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Securities
registered pursuant to Section 12(b) of the Act:

Common Stock $.01 par value(Title of class)

American Stock Exchange(Name of each exchange on which registered)


Securities registered pursuant to Section 12(g) of the Act:None

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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the
preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. X  No

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form l0-K or any amendment to this Form
l0-K.

The
aggregate market value of the voting stock held by non-affiliates of the Registrant (assuming for these purposes, but without conceding, that all executive officers and Directors are
"affiliates" of the Registrant) as of March 11, 2002 (based on the closing sale price as reported on AMEX on such date) was $23,073,592.

The
number of shares outstanding of the Registrant's Common Stock as of March 11, 2002 was 3,607,258.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 21, 2002, are incorporated by reference in Part III.

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Factors that may affect future results

The Company's prospects are subject to certain uncertainties and risks. This Annual Report on Form 10-K also contains certain forward-looking statements within
the meaning of the Federal Securities Laws. The Company's future results may differ materially from its current results and actual results could differ materially from those projected in the
forward-looking statements as a result of certain risk factors. READERS SHOULD PAY PARTICULAR ATTENTION TO THE CONSIDERATIONS DESCRIBED IN THE SECTION OF THIS REPORT ENTITLED "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSFACTORS AFFECTING FUTURE RESULTS." Readers should also carefully review risk factors that may be described in other documents
the Company files from time to time with the Securities and Exchange Commission.

PART I

ITEM 1. BUSINESS

The DeWolfe Companies, Inc. (the "Company") is an integrated homeownership service company, primarily engaged in the business of providing sales and
marketing services to consumers in connection with residential real estate transactions. In addition, the Company originates and services residential mortgage loans, markets insurance products, and
provides corporate and employee relocation and related services to a variety of clients. As such, the Company describes the services that it renders as "homeownership" services. The Company
concentrates primarily in the residential segment of the real estate market. Accordingly, for financial purposes the Company views itself as having three reportable operating segments: real estate,
including both real estate brokerage and relocation services, mortgage banking and insurance services. For additional segment information, see Note 12 of Notes to Consolidated Financial Statements.
The Company is the largest homeownership company in New England where its services are offered in Massachusetts, New Hampshire, Maine, Connecticut and Rhode Island.

The
Company was incorporated in Massachusetts in 1984 at which time it acquired The DeWolfe Company, Inc., which had been incorporated in 1975 as the successor to a real estate
brokerage business originally founded in 1949 by the family of the Company's Chairman and Chief Executive Officer, Richard B. DeWolfe. The DeWolfe Companies, Inc. is the parent corporation of
five principal subsidiary corporations, which are the Company's operating entities: The DeWolfe Company, Inc. and its subsidiaries provide residential real estate sales and marketing services; DeWolfe
Mortgage Services, Inc. originates and services residential real estate mortgage loans; DeWolfe Relocation Services, Inc., and its subsidiaries provide relocation services; The DeWolfe
Insurance Agency, Inc. provides insurance products to the Company's customer base; and DeWolfe.com offers integrated homeownership tools and services via the internet. The Company and its
subsidiaries do business under the trade name "DeWolfe". Additionally, the Company's subsidiary DeWolfe Cares, Inc. operates as a public charity primarily to provide support and assistance to those in
need of housing and related services, through donations and working relationships with community-based charitable organizations and is not included in the Company's consolidated financial statements.
References in this report to the business and operations of the Company include the business and operations of the Company and its consolidated subsidiaries.

Residential Real Estate Sales and Marketing

The Company acts as a broker or agent in residential real estate transactions. In performing these services, the Company has historically represented the seller,
either as the listing broker, or as a co-broker in the sale. In acting as a broker for the seller, the Company's services include assisting the seller in pricing the property and preparing it for
sale, advertising the property, showing the property to prospective buyers, and assisting the seller in negotiating the terms of the sale and in closing the transaction. In exchange for these
services, the seller pays to the Company a commission, which is generally a fixed percentage of the

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sales price. In a co-broke arrangement the listing broker typically splits its commission with the other co-broker involved in the transaction. The Company also offers buyer brokerage services. When
acting as a broker for the buyer, the Company's services include assisting the buyer in locating properties that meet the buyer's personal and financial specifications, showing the buyer properties,
and assisting the buyer in negotiating the terms of the purchase and closing the transaction. In exchange for these services a commission is paid to the Company which also is generally a fixed
percentage of the purchase price and is usually, with the consent of the listing broker, deducted from, and payable out of, the commission payable to the listing broker. With the consent of a buyer
and seller, subject to certain conditions, the Company may, in certain circumstances, act as a selling broker and as a buying broker in the same transaction. The Company's sales and marketing services
are mostly provided by licensed real estate sales associates who have entered into independent contractor agreements with the Company. During the year ended December 31, 2000, the Company
changed its method of revenue recognition for residential real estate brokerage commissions in accordance with Staff Accounting Bulletin No. 101,Revenue Recognition in
Financial Statements("SAB 101"). Previously, the Company had recognized revenue when the buyer and seller of a property entered into a contract of sale and a good faith
deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company began to recognize revenue upon the consummation of the underlying real estate
sale.

Relocation Services

Through DeWolfe Relocation Services, Inc. ("DRS"), and its subsidiaries, the Company offers to employers a variety of specialized services primarily
concerned with facilitating the resettlement of transferred employees. These services include sales and marketing of transferees' existing homes for their corporate employer, assistance in finding new
homes, moving services, educational and school placement counseling, customized videos, property marketing assistance, rental assistance, area tours, international relocation, group move services,
marketing and management of foreclosed properties, career counseling, spouse/partner employment assistance, and financial services. Clients can select these programs and services on a fee basis
according to their needs.

Since
1997, the Company has had an agreement with Reliance Relocation Services, Inc. ("RELO") to provide relocation services to the RELO network. The RELO organization comprises a
network of nearly 700 independent real estate brokerage firms, which includes 27% of the nation's top 500 real estate firms. The Company is a founding member and shareholder of RELO. The Company
anticipates that participation in RELO will continue to provide new relocation opportunities with firms on a national level.

DRS
generated approximately 17% of the Company's real estate sales dollar volume (aggregate sales price) in 2001 and 18% in 2000 and 1999. The alliance with RELO accounted for
approximately 5% of DRS transactions for the year ended December 31, 2001 and 6% in the years ended December 31, 2000 and 1999.

Real Estate Brokerage Revenues

The following table summarizes the Company's revenues from residential real estate transactions closed, including relocation, for the periods indicated:

|                                   |  | Years ended December 31,
|---------------------------------- |  | ------------------------
|
|
|Number of Transactions             |  |                         
|Aggregate Sales Price              |  | $                       
|Real Estate Brokerage Revenues     |  | $                       
|Net Real Estate Brokerage Revenues |  | $                       

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Real
estate brokerage revenues accounted for 95%, 96% and 96% of total revenues and net real estate brokerage revenues accounted for 85%, 90% and 89% of net revenues of the Company for
the years ended December 31, 2001, 2000 and 1999, respectively.

Mortgage Banking

The Company, through its wholly owned subsidiary, DeWolfe Mortgage Services, Inc. ("DMS"), is engaged in the residential mortgage business, which involves the
origination, sale and servicing of
mortgage loans for one-to-four family residences. The Company primarily originates and services loans for purchases of properties located in Massachusetts, New Hampshire, Connecticut, Rhode Island and
Maine. The majority of these loans are for home sales transactions in which the Company also acts as a broker. The term "origination" refers generally to the process of providing mortgage financing
for the purchase of property directly to the purchaser or for refinancing an existing mortgage. The Company primarily funds mortgage loans under a $50 million line of credit with Comerica Bank. The
majority of its mortgage loans are funded by the line of credit, and the remainder of the loans are funded by investors at closing. The Company sells the loans that it funds through the line of credit
to investors in the secondary mortgage market, including correspondent relationships with several financial institutions (investors or wholesale lenders). These sales are pursuant to a pre-closing
commitment from the investor at a specified price, based upon a specified interest rate and type of mortgage loan. These relationships are governed by contracts which establish procedures for
registering certain types of loans, including delegated underwriting and submitting complete loan packages for approval, meeting conditions established by the investors, funding the loans, delivering
the closed loan package, and assigning the loan to the investor. The Company originates "conventional" mortgage loans, as well as loans that are guaranteed or insured by agencies of the federal
government, secured by one-to-four family residential properties (including condominiums), that comply with the requirements for sale to either the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation ("FHLMC"). The Company also originates "jumbo" loans (conventional loans that exceed the maximum amounts qualifying for sale to FNMA or FHLMC but that
otherwise generally comply with FNMA or FHLMC requirements) and other loans that do not comply with FNMA or FHLMC requirements but that do comply with requirements for sale to private investors.

The
Company is an approved seller/servicer of FNMA and FHLMC, the largest national investors in residential mortgage loans, and the Company sells some of its loans directly to these
investors while retaining the rights to service these loans. Mortgage servicing includes processing loan payments, administering escrow funds, monitoring delinquencies, managing foreclosures, and
answering borrowers' inquires. Servicing fees are collected by the Company out of mortgage payments and are normally equal to a fixed percentage of the declining principal balance of the loan. In
addition, income is derived from earnings on escrow accounts, late fees, and interest on funds received from borrowers prior to remittance to the purchasers of the loan. The right to service these
loans has been accounted for as an asset (Originated Mortgage Servicing Rights) of the Company. This servicing asset is subject to adjustments for impairment of valuation due to prepayment risk.

The
funding of loans by investors at closing or through the line of credit arrangement subjects the Company to certain risks. For example, if a loan fails to satisfy the terms required
under an investor's pre-closing commitment, the investor may decide not to fund or purchase the loan. Alternatively, there is a risk that the Company will fail to obtain a pre-closing commitment from
an investor in the secondary market when the Company makes a loan commitment to a borrower. In either case, the Company would then be required to find an alternative investor, which, depending on
market conditions, and the nature of the issue giving rise to the first investor's failure to purchase the loan, could result in the loan being unsaleable or saleable only at a loss. The Company
believes its exposure to interest rate risk is reasonable, but rapid changes in interest rates could result in loans being sold at a loss.

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Another
risk the Company faces under this way of doing business is if an error is made in entering into a forward sale commitment, or if an investor breaches its obligation to purchase a
loan at the agreed-upon price, which potentially could place the Company at risk for changes in value due to changes in interest rates. The Company manages these risks by maintaining strict policies
and procedures to insure proper coverage, and by carefully evaluating the financial capabilities and business practices of its investors.

The
Company's mortgage servicing business is also subject to certain risks. For example, the decision to purchase servicing rights or to sell loans while retaining servicing rights is
based in part on the Company's estimate of the market value of the servicing rights purchased or retained, which in turn is based on the estimated present value of the expected future cash flows from
such rights. Various events, such as a higher than anticipated rate of default or prepayment on loans which the Company has servicing rights, could adversely affect the value of, and earnings from,
these rights. However, it is the Company's practice to acquire or retain only servicing rights "without recourse", which means that if a borrower defaults on a loan, then the Company would not be
required to remit funds to the loan investor or owner until remittance was received from the borrower.

The
Company's mortgage revenues consist of loan origination fees, which are generally a percentage of the original principal amount of the loan and are commonly referred to as "points",
application and investor fees paid by the borrowers, originated mortgage servicing rights capitalized and service release premiums paid by the investors. Mortgage revenues are offset by direct loan
origination costs, which consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report fees paid to third parties. The Company recognizes mortgage origination
revenues and costs when the sale of a mortgage loan is consummated. DeWolfe Mortgage Services, Inc. is licensed as both a mortgage lender and as a mortgage broker in Massachusetts, New
Hampshire, Rhode Island, Maine and Connecticut.

The
following table summarizes the Company's mortgage origination and servicing activities for the periods indicated:

|                                          |  | Years ended December 31,
|----------------------------------------- |  | ------------------------
|
|
|Mortgages Originated and Closed           |  |                         
|Closed Loan Volume                        |  | $                       
|Mortgage Revenues                         |  | $                       
|Balance at December 31:                   |  |                         
|Loans Serviced for Others                 |  | $                       
|Originated Mortgage Servicing Rights, Net |  | $                       

Insurance Services

In 1996, the Company commenced its insurance agency business, The Company acts as an insurance agent, advising customers as to their insurance needs and the
appropriate types and amounts of coverage, placing
coverage on their behalf with insurers directly or through wholesale insurance brokers, and assisting them with any subsequent claims. In return for these services, the Company's customers pay
premiums based upon the type and amount of coverage purchased and the insurer remits to the Company a commission for sale of the coverage. Premium and commission rates vary in amount depending upon
the type of insurance coverage provided, the insurance company underwriting the coverage and other factors. Gross commission revenues from insurance were $2.4 million in 2001, $1.7 million in 2000 and
$1.2 million in 1999. In August 2001, DeWolfe Insurance Agency, Inc. acquired the personal lines business of the AON Private Risk Management Insurance Agency, Inc., which included
approximately 7,400 policyholders.

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Marketing

The Company's real estate sales and marketing, mortgage banking, insurance, and relocation services are marketed by a multimedia program conducted throughout
Massachusetts, New Hampshire, Connecticut, Rhode Island and Maine. This program includes direct mail, newspaper, internet, catalog, radio and television advertising. In addition, the integrated nature
of the Company's services is designed to produce a flow of customers from its real estate sales and marketing business to its mortgage and insurance businesses.

Competition

The businesses in which the Company is engaged are highly competitive. Many of its competitors, through affiliated franchising organizations, have substantially
greater financial resources than the Company. However, the Company believes that its ability to offer its customers a range of inter-related services and its relative strength in residential real
estate sales and marketing strongly position it to meet the competition and improve its market share.

In
the Company's traditional business of residential real estate sales and marketing, the Company competes primarily with multi-office independent real estate organizations and, to some
extent with franchise real estate organizations, such as Century-21, ERA, Realty World, RE/MAX, The Prudential, and Coldwell Banker. The Company believes that its major competitors in 2002 will be
multi-office real estate organizations, such as GMAC Home Services and NRT. Companies compete for sales and marketing business primarily on the basis of services offered, reputation, personal
contacts, and, to some degree, price.

The
Company's relocation business is fully integrated with its residential real estate sales and marketing business. Accordingly, the Company's major competitors are many of the same
real estate organizations previously noted. Competition in the relocation business is based primarily on level of service, reputation, personal contact and recently to a greater extent, price.

In
its mortgage loan origination business, the Company competes with other mortgage originators, such as mortgage bankers, state and national banks, and thrift institutions. Many of the
Company's competitors for mortgage services have substantially greater resources than the Company. The Company competes for loan origination business based on services offered, price and available
terms, and its ability to obtain referrals through its sales and marketing services. DMS employs full-time mortgage consultants who are assigned to various Company real estate offices. The mortgage
consultants originate mortgage loans almost exclusively from the Company's real estate customers.

In
insurance services, the Company competes primarily with locally-owned independent insurance brokers. Competition in insurance services is based primarily on level of service,
reputation, personal contact and to a greater extent, price.

Government Regulation

Several facets of the Company's business are subject to government regulation. For example, the Company's real estate sales and marketing subsidiaries are
licensed as real estate brokers in the states in which they conduct their real estate brokerage businesses. In addition, the Company's real estate sales associates must be licensed as real estate
brokers or salespersons in the states in which they do business. Future expansion of the Company's operations into new geographic markets may subject it to similar licensing requirements in other
states.

A
number of states and localities have adopted laws and regulations imposing environmental controls, disclosure rules, zoning, and other land use restrictions, which can materially
impact the marketability of certain real estate. However, the Company does not believe that compliance with environmental, zoning,

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and land use laws and regulations has had, or will have, a materially adverse effect on its financial condition or operations.

In
its mortgage business, mortgage loan origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Real Estate Settlement Procedures
Act, and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to borrowers concerning credit and settlement costs. As an approved FNMA
and FHLMC mortgage seller, the Company is required to comply with FNMA and FHLMC seller guidelines for secondary sale of mortgages.

Additionally,
there are various state laws affecting the Company's mortgage operations, including licensing requirements and substantive limitations on the interest and fees that may be
charged. States also have the right to conduct financial and regulatory audits of the loans under their jurisdiction.

The
Company is licensed as a mortgage lender and as a mortgage broker in Massachusetts, New Hampshire, Maine, Rhode Island, and Connecticut. In Massachusetts, the Company is required to
submit annual audited financial statements to the Commissioner of Banks and maintain a minimum net worth of $100,000, $75,000 of which can be in the form of a bond.

There
are various state laws affecting the Company's insurance operations, including licensing requirements.

The
Company is not aware of any material licensing or other government regulatory requirements governing its relocation business, except to the extent that such business also involves
the rendering of real estate brokerage services, the licensing and regulation of which are described above.

Trade Names

The name "DeWolfe" (registered in Massachusetts, New Hampshire, Connecticut, Rhode Island and Maine), the DeWolfe logotype, and the tagline "One Stop and You're
Home" are used extensively in the Company's businesses. These service marks are material to the business of the Company and have been registered in the applicable states. The tagline "One Stop and
You're Home" has also been registered federally. In addition, the Company continues to use the trade names of certain companies that it has acquired, and has registered other marks used in its
businesses.

Seasonality

The residential real estate sales and marketing business, mortgage loan origination business, and relocation services business are subject to seasonal
fluctuations. Historically, the Company's revenues from these businesses were greater in the second and third quarters than in first and fourth quarters. As shown below, after adoption of SAB 101
revenues are typically higher in the last three quarters of the year than in the first quarter. The following table illustrates the percentage of the Company's revenues by quarter for the periods
indicated.

|               |  | Percentage of Revenues |  
|-------------- |  | ---------------------- | -
|
|First Quarter  |  | 14.0                   | %
|Second Quarter |  | 26.2                   | %
|Third Quarter  |  | 33.4                   | %
|Fourth Quarter |  | 26.4                   | %
|               |  |                        |  
|               |  | 100                    | %
|               |  |                        |  

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Work Force

At December 31, 2001 the Company's total work force numbered 3,093 people, including 577 employees (including 89 mortgage banking personnel), 2,503 real
estate sales associates and 13 relocation associates. The Company believes that its relations with its personnel are satisfactory and none of its employees are represented by a union. All of its real
estate sales associates are independent contractors. As independent contractors, the real estate sales associates are paid by commission solely on the basis of closed sales transactions. Mortgage
consultants are paid primarily on the basis of closed mortgage loans.

Growth Strategies



Historically until 1999, the Company's growth has been achieved primarily through acquisitions. In some acquisitions, the Company acquired the respective business
under a non-competition, consulting, and cooperation agreement with the acquired firm's principal which provided for contingent cash payments to such principal in exchange for the principal's
fulfillment of the terms of the agreement and based upon the net commission income derived from the acquired firm's sales offices during the term of the agreement. In other cases the purchase price
was paid primarily with cash and debt or the issuance of shares of the Company's common stock.

The
Company expects to fund all or a portion of future acquisitions through credit facilities negotiated with the principals of the acquired businesses or with institutional lenders.
Additionally, the Company may continue to issue shares of its common stock to complete acquisitions and in some cases the Company may grant registration rights to the sellers in such acquisitions. As
a result, resales of shares issued in such acquisitions may affect the market price of the Company's stock, depending on the number of shares sought to be sold in any particular period.

During
2001 the Company completed the acquisition of one real estate brokerage firm, Lazarus Properties LTD. In addition, during 2001 the Company acquired the personal lines business of
the AON Private Risk Management Insurance Agency, Inc.

During
2000 the Company completed the acquisition of two real estate brokerage firms, Yankee Realty Corp. and the Strong Agency, LLC.



The Company has expanded by entering businesses related to homeownership such as mortgage banking and insurance sales. The Company expects to continue to
investigate other revenue producing services providing a better range of products and quality of service related to homeownership.

ITEM 2. PROPERTIES

The Company's principal executive offices are located at 80 Hayden Avenue, Lexington, Massachusetts where it leases approximately 44,000 square feet of space
under leases which require rent of $1,177,000 per year ($27 per square foot) and expire at various dates through January, 2006. In addition, the Company leases office space for its 95 locations and 3
storage space locations, which consist of an average of 3,453 square feet each, under leases which require rent ranging from $8,400 per year ($13 per square foot) to $270,000 per year ($23 per square
foot) and expire at various times through December, 2010. The Company owns the land and building occupied by its Westford, Massachusetts sales office. The property includes approximately 4,400 square
feet of renovated sales office space. As of December 31, 2001 the property was subject to mortgages in the aggregate amount of $235,000.

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ITEM 3. LEGAL PROCEEDINGS

The Company is not party to any legal proceedings, except for litigation and arbitration claims arising in the ordinary course of business which, if adversely
determined, should not have, in the opinion of the Company, a material adverse effect either in the aggregate or in any single case on the operations or financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The common stock of the Company is traded on the American Stock Exchange under the symbol "DWL". The following table sets forth, for the periods indicated, the
high and low selling prices as
reported by the American Stock Exchange. As of March 11, 2002, there were 4,318 record holders of the Company's Common Stock.

|Calendar Period 2000 |  | High |       | Low
|-------------------- |  | ---- | ----- | ---
|First Quarter        |  | $    | 8.00  |    
|Second Quarter       |  |      | 8.50  |    
|Third Quarter        |  |      | 8.06  |    
|Fourth Quarter       |  |      | 8.75  |    
|Calendar Period 2001 |  |      |       |    
|First Quarter        |  | $    | 9.13  |    
|Second Quarter       |  |      | 7.82  |    
|Third Quarter        |  |      | 9.10  |    
|Fourth Quarter       |  |      | 10.95 |    

On
November 7, 2001, the Company declared a special cash dividend of $0.20 per common share payable on January 3, 2002 to holders of record on December 4, 2001. On
November 14, 2000, the Company declared a special cash dividend of $0.18 per common share payable on January 3, 2001 to holders of record on December 5, 2000. On
November 9, 1999, the Company declared a special cash dividend of $0.15 per common share payable on January 4, 2000 to holders of record on December 7, 1999. Pursuant to credit
agreements with Fleet Bank, N.A., the Company is restricted from paying dividends without the prior written consent of the lender, which was obtained in each case. The Company will periodically
evaluate the merits of paying future cash dividends, however, at this time the Company has no plans to pay any future cash dividends.

On
February 26, 2002, the Company declared a 3 for 2 stock split in the form of a stock dividend payable to shareholders on March 28, 2002. The effect of the stock split is
not reflected in the calculations of per share, shares outstanding or stock price data in this report.

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ITEM 6. SELECTED FINANCIAL DATAFive Year Financial Summary

|                                                                  |  | Fiscal Year
|----------------------------------------------------------------- |  | -----------
|
|
|Results of Operations                                             |  |            
|Total revenue                                                     |  | $          
|Commission expense                                                |  |            
|                                                                  |  |            
|Net revenue                                                       |  |            
|Operating income                                                  |  |            
|Income before income taxes                                        |  |            
|Income before cumulative effect of change in accounting principle |  |            
|Cumulative effect of change in accounting principle               |  |            
|                                                                  |  |            
|Net income                                                        |  | $          
|                                                                  |  |            
|Per share data:                                                   |  |            
|Basic earnings per share                                         |  |            
|Income before cumulative effect of change in accounting principle |  | $          
|Cumulative effect of change in accounting principle               |  |            
|                                                                  |  |            
|Net income                                                        |  | $          
|                                                                  |  |            
|Diluted earnings per share                                       |  |            
|Income before cumulative effect of change in accounting principle |  | $          
|Cumulative effect of change in accounting principle               |  |            
|                                                                  |  |            
|Net income                                                        |  | $          
|                                                                  |  |            

|                             |  | December 31,
|---------------------------- |  | ------------
|
|
|Financial Position           |  |             
|Cash and cash equivalents    |  | $           
|Mortgage loans held for sale |  |             
|Total assets                 |  |             
|Long-term debt               |  |             
|Total liabilities            |  |             
|Stockholders' equity         |  |             

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear
elsewhere in this report.

OVERVIEW OF OPERATIONS

Income before the cumulative effect of change in accounting principle for 2001 was $6.6 million compared to $5.5 million in 2000, an increase of 21%. The increase
in 2001 was primarily attributed to growth of the Company within its existing real estate markets and an increase in the Company's mortgage business.

As
more fully discussed in Note 1 of the Notes to Consolidated Financial Statements, the Company adopted U.S. Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB
101) on Revenue Recognition in the fourth quarter of 2000 and recorded a cumulative effect of change in accounting principle related to real estate brokerage revenues recognized in prior periods. As a
result, the Company recorded a one-time, non-cash charge of $3.7 million, which represented the one-time reversal of net real estate commissions receivable that were recorded in revenue as collected
in future periods. Previously, the Company had recognized revenue when the buyer and seller of a property entered into a contract of sale and a good faith deposit was made by the buyer. Under the new
accounting method adopted retroactive to January 1, 2000, the Company began to recognize revenue upon the consummation of the underlying real estate sale.

The
following table summarizes selected operating ratios (shown as a percentage of net revenue) as of December 31 for each of the years indicated:

|                                                                      |  | 2001  |  | 2000  |  | 1999 
|--------------------------------------------------------------------- |  | ----- |  | ----- |  | -----
|Operating income                                                      |  | 14.1% |  | 13.5% |  | 13.4%
|Income before taxes                                                   |  | 14.8% |  | 13.7% |  | 13.3%
|Income before the cumulative effect of change in accounting principle |  | 8.3%  |  | 7.7%  |  | 7.7% 

RESULTS OF OPERATIONS

2001 Compared with 2000

Real Estate Brokerage Revenues

Real estate brokerage revenues increased 8% in 2001 to $202.9 million, an increase of $15.8 million over 2000. Real estate brokerage revenue per sales associate
was $84 thousand in 2001 and $83 thousand in 2000. The increase in real estate brokerage revenues was primarily attributed to the growth in the Company's existing markets which the Company believes
was attributable to the current low interest rate environment, additional acquisitions, and the Company's integrated homeownership services marketing strategy.

Real
estate brokerage revenues in 2001 included $8.3 million of revenues from relocation services as compared to $8.5 million in 2000, a decrease of 3%. The decrease was primarily due to
a decrease in the number of corporate services client moves.

Net
revenues from real estate brokerage increased 7% in 2001 to $68.2 million, an increase of $4.4 million over 2000. Net real estate brokerage revenues as a percentage of real estate
brokerage revenues were 34% in 2001 and 2000. Net revenues from real estate brokerage are impacted by many factors, including those beyond the Company's control, such as the number of co-brokered home
sales and prevailing market rates for sales associates commission structures.

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Mortgage Revenues

Mortgage revenues increased 76% in 2001 to $7.7 million, an increase of $3.3 million from 2000. The increase was primarily due to an increase in mortgage loans
closed, which the Company believes was caused by a lower interest rate market and an expansion of the mortgage sales staff. During 2001, the Company's closed loan volume totaled $789.1 million
compared to $448.7 million in 2000. The following table shows mortgage closings broken out between home purchase and refinance transactions (dollars in millions):

|          |  | 2001 |       | 2000 |   | $ Increase |  | % Increase |      
|--------- |  | ---- | ----- | ---- | - | ---------- |  | ---------- | -----
|Purchase  |  | $    | 558.2 |      | $ | 433.8      |  | $          | 124.4
|Refinance |  |      | 230.9 |      |   | 14.9       |  |            | 216.0
|          |  |      |       |      |   |            |  |            |      
|          |  | $    | 789.1 |      | $ | 448.7      |  | $          | 340.4
|          |  |      |       |      |   |            |  |            |      

Insurance Revenues

Insurance revenues increased 44% in 2001 to $2.4 million, an increase of $739 thousand over 2000. The increase was primarily due to a higher percentage of real
estate brokerage customers purchasing their insurance through the Company as well as growth in the Company's group insurance business, and growth in the Company's renewal book of business.

Other Revenues

Other revenues, which primarily consist of revenues related to reimbursement of real estate expenditures and services, increased 13% in 2001 to $1.5 million, an
increase of $164 thousand over 2000. The increase was primarily due to growth in the Company's existing real estate markets.

Operating Expenses

Operating expenses increased 11% in 2001 to $68.5 million, an increase of $7.0 million over 2000. Operating expenses as a percentage of net revenues were 86% in
2001 and 2000, respectively. The increase in operating expenses in 2001 was primarily due to costs associated with the increase in the Company's overall business, along with implementation of new
marketing strategies and investments in technology and communications.

Other Income (Expense)

Interest expense increased by $737 thousand in 2001 as compared to 2000. The increase in 2001 was primarily due to an increase of $872 thousand in interest on the
mortgage warehouse line of credit and increased interest on chattel mortgages of $35 thousand, partially offset by a decrease in interest of $170 thousand primarily related to the financing of
acquisitions The increase in interest on the mortgage warehouse line of credit was primarily due to higher average balances outstanding on the line.

The
Company realized a gain of $247 thousand in 2001 and $306 thousand in 2000 on the sales of securities held as investments.

Interest
income increased by $1.2 million in 2001 as compared to 2000. The increase was primarily due to additional interest earned on mortgage loans held for sale of $1.4 million, and
partially offset by a decrease in interest earned on bank accounts of $218 thousand. The change in net interest earned on mortgage
loans held for sale was primarily due to increased loan closing volume. The change in interest earned on bank accounts was primarily due to a decline in interest rates.

13

---

2000 Compared with 1999

Real Estate Brokerage Revenues

Real estate brokerage revenues increased 9% in 2000 to $187.1 million, an increase of $15.3 million over 1999. Real estate brokerage revenue per sales associate
was $83 thousand in 2000 and $89 thousand in 1999. The increase in real estate brokerage revenues was primarily attributed to the growth in the Company's existing markets and the positive effects of
the integration of the prior years' acquisitions. The Company's growth in its existing markets was attributed to the continued strong economy combined with the Company's integrated homeownership
services marketing strategy.

Real
estate brokerage revenues in 2000 included $8.5 million of revenues from relocation services as compared to $7.3 million in 1999, an increase of 16%. The increase was primarily due
to an increase in the number of corporate services clients as well as the Company's expansion into new markets.

Net
revenues from real estate brokerage increased 11% in 2000 to $63.7 million, an increase of $6.1 million over 1999. Net real estate brokerage revenues as a percentage of real estate
brokerage revenues were 34% in 2000 and 1999. Net revenues from real estate brokerage are impacted by many factors, including those beyond the Company's control, such as the number of co-brokered home
sales and prevailing market rates for sales associates commission structures.

Mortgage Revenues

Mortgage revenues decreased 6% in 2000 to $4.4 million, a decrease of $292 thousand from 1999. The decrease was primarily due to a decrease in mortgage loans
closed and lower margins on loans, which the Company believes was caused by a higher interest rate market, and increased competition in the mortgage industry. During 2000, the Company's closed loan
volume totaled $448.7 million compared to $451.9 million in 1999.

Insurance Revenues

Insurance revenues increased 41% in 2000 to $1.7 million, an increase of $486 thousand over 1999. The increase was primarily due to a higher percentage of real
estate brokerage customers purchasing their insurance through the Company as well as growth in the Company's group insurance business, and growth in the Company's renewal book of business.

Other Revenues

Other revenues, which primarily consist of revenues related to reimbursement of real estate expenditures and services, increased 6% in 2000 to $1.3 million, an
increase of $78 thousand over 1999. The increase was primarily due to growth in the Company's real estate markets.

Operating Expenses

Operating expenses increased 10% in 2000 to $61.5 million, an increase of $5.4 million over 1999. Operating expenses as a percentage of net revenues were 87% in
2000 and 1999. The increase in operating expenses in 2000 was primarily due to costs associated with the increase in the Company's overall business, along with implementation of new marketing
strategies, investments in technology and communications, and costs associated with acquired operations.

Other Income (Expense)

Interest expense increased by $377 thousand in 2000 as compared to 1999. The increase in 2000 was primarily due to an increase of $217 thousand in interest on the
mortgage warehouse line of credit, additional interest of $118 thousand primarily related to the financing of acquisitions and increased

14

---

interest on chattel mortgages of $62 thousand. The increase in interest on the mortgage warehouse line of credit was primarily due to the average balance outstanding on the line.

The
Company realized a gain of $306 thousand in 2000 on the sale of securities held as investments.

Interest
income increased by $302 thousand in 2000 as compared to 1999. The increase was primarily due to additional interest earned on bank accounts of $448 thousand and partially
offset by a decrease in interest earned on mortgage loans held for sale of $146 thousand. The change in net interest earned on bank accounts was primarily due to higher average balances kept in bank
accounts.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's cash and cash equivalents at December 31, 2001 totaled $18.7 million compared to $14.5 million at December 31, 2000. Cash used in
operating activities was $29.4 million in 2001, as compared to $5.1 million in 2000 and cash provided of $23.1 million in 1999. The changes in cash provided by or used in operations in 2001, 2000, and
1999 were primarily due to the increases and decreases in the Company's mortgage loans held for sale which were funded by the Company's mortgage warehouse line of credit and by cash generated by net
earnings. Net cash used relating to an increase in mortgage loans held for sale was $34.9 million in 2001 and $11.0 million in 2000 as compared to net cash provided related to a decrease in mortgage
loans held for sale of $18.6 million in 1999.

Expenditures
for property and equipment totaled $2.3 million in 2001, $935 thousand in 2000, and $2.1 million in 1999. Capital spending during this period was primarily attributed to the
Company's investment in improvements to acquired and existing sales offices and upgrades to systems and technology. The Company intends to continue to make expenditures for property and equipment in
order to maintain its standards for a quality appearance and processing systems in all of the Company's locations.

The
Company has various credit arrangements with Fleet Bank, N.A., including a $20 million acquisition line of credit, a revolving line of credit of $5.0 million, a $5.0 million
relocation revolving line of credit and an aggregate equipment lease line of credit and chattel mortgage financing of $5.0 million. The Company's revolving line of credit and relocation revolving line
of credit mature on April 30, 2002 and are expected to be renewed. The current outstanding amount under the Company's acquisition line of credit is scheduled to convert to a five year term note
on April 30, 2002.

The
outstanding amount of the acquisition line of credit was $13.6 million at December 31, 2001 and $12.4 million at December 31, 2000. There was no outstanding amount
under the revolving line of credit at December 31, 2001 and 2000. There was no outstanding amount under the relocation revolving line of credit at December 31, 2001 and 2000. At
December 31, 2001 and 2000, the Company had outstanding balances under lease lines of credit and chattel mortgage financing of $3.9 million and $3.5 million, respectively.

In
connection with the mortgage loan activity the Company maintains a $50 million mortgage warehouse line of credit with Comerica National Bank that is used to finance mortgage loans
that it originates. Prior to June 2001 the line was with First Union National Bank. The Company received a temporary increase in the line to $75 million through February 1, 2002 to
accommodate the increased
loan volume during the quarter. The credit line had outstanding balances of $62.2 million and $22.9 million at December 31, 2001 and 2000, respectively.

During
the third quarter of 2001 the Company authorized a stock repurchase plan of 200,000 shares of the Company's common stock. This plan superseded the Company's prior repurchase plan.
During the third and fourth quarter, the Company purchased 27,800 shares of stock at a cost of $223 thousand under the new repurchase plan.

The
Company considers its cash flows from operations, combined with its credit arrangements with Fleet Bank, N.A. and Comerica Bank, to be adequate to fund continuing operations.
However, the

15

---

Company expects to continue to expand its existing businesses, which may include opening new real estate sales offices as well as making investments in or acquiring other real estate and or insurance
businesses. As a result, the Company from time-to-time may seek additional or alternate sources of debt or equity financing which could include the issuance of shares of the Company's capital stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company's real estate brokerage services principally involve providing a ready, willing and able buyer of a property to the seller. During the year ended
December 31, 2000, the Company changed its method of revenue recognition for residential real estate brokerage commissions in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements.Previously, the Company had recognized revenue when the buyer and seller of a property entered into a
contract of sale and a good faith deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company now recognizes revenue upon the consummation
of the underlying real estate sale.

Mortgage
loan origination revenues, offset by direct loan origination costs, are deferred and the net amount is recognized as a component of gain on sale of mortgage loans when the sale
of the loan has been consummated. Mortgage loan origination revenues consist primarily of loan origination, application and investor fees paid by the borrowers, originated mortgage servicing rights
capitalized and service release premiums paid by the investors. Direct loan origination costs consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report
fees paid to third parties. Interest on mortgage loans held for sale is recognized as income when earned.

Derivatives

The Company has designated its derivative instruments as cash flow hedges and gains or losses on these instruments are recognized in shareholders' equity as a
component of comprehensive income. The Company's derivatives include (1) forward sale commitments which are used to hedge the anticipated future sale of mortgage loans and generally are entered
into for periods of under three months and (2) an interest rate swap agreement which matures on April 30, 2002 with the notional amount of $12.4 million to hedge the anticipated future cash
flows related to the Company's acquisition line of credit. The Company does not account for outstanding commitments to extend credit as derivatives. The Financial Accounting Standards Board is
currently evaluating whether such commitments should be accounted for as derivatives. The outcome of these deliberations could result in a change in the Company's accounting in a future period.

16

---

Goodwill and Intangible Assets

In July 2001, the Financial Accounting Standards Board issued Statement No. 142,Goodwill and Other
Intangibles(Statement 142). Under Statement 142, the excess of cost over value in net assets and indefinite lived intangible assets will no longer be amortized but will be
reviewed periodically for impairment. The Company is required to adopt Statement 142 on January 1, 2002. In connection with
the adoption of Statement 142, approximately $919 thousand of excess cost over value in net assets will be reclassified as an amortizable insurance intangible. The Company has preliminarily concluded
that no impairment writedown will be required in connection with the adoption of Statement 142. The Company has adopted Statement 142 for all current year acquisitions, and is not amortizing the
excess of cost over value in net assets related to these acquisitions. The Company's non-compete and consulting agreements and insurance intangible will continue to be accounted for as assets subject
to amortization.

Costs
related to non-compete and consulting agreements entered into as part of the Company's acquisition of real estate agencies are being amortized over the period of the respective
agreements which range from three to five years. The Company has recorded $901 thousand as an insurance intangible asset representing the value of insurance policies acquired. The insurance intangible
is being amortized over a 15 year period.

Non-Employee Stock Options

The Company accounts for stock options granted to non-employees in accordance with Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation(Statement 123). Under Statement 123, the Company expenses options granted to non-employees over the vesting
term of the options using the fair value of the options as of the financial statement date.

FACTORS AFFECTING FUTURE RESULTS

Cautionary statement for purposes of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995

Certain statements, which are not historical fact, including but not limited to, statements concerning future acquisitions, financing of such acquisitions, new
products, financing of the Company's mortgage line of credit, expenditures for property and equipment, future alternative revenue sources and relocation opportunities, dividends, cash flows, and
revenues, both generally and with respect to particular fiscal quarters, and market share, may be deemed to be forward looking statements. There are many important factors that would cause the
Company's actual results to differ materially from those indicated in the forward-looking statements. Such factors include, but are not limited to, interest rates and economic conditions generally,
regulatory changes (legislative or otherwise) affecting the residential real estate and mortgage lending industries, competition, and prevailing rates for sales associate commission structures.

Inflation

The Company believes that its revenues per transaction are primarily affected by the increase or decrease in home sale prices. However, the Company's expenses are
affected by general price changes, which may not necessarily parallel the changes in home sale prices.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest rate risk is the most significant market risk affecting the Company. Interest rate risk is the possibility that changes in interest rates will cause
unfavorable changes in net income or in the value of interest-rate sensitive assets, liabilities and commitments. As part of the Company's interest rate risk management programs, the Company purchases
financial instruments and enters into agreements with off-balance sheet risk in the normal course of business to manage its exposure to interest rate risk. The

17

---

Company uses financial instruments for the purpose of managing interest rate risks to protect the value of its mortgage loans held for sale and mortgage commitment pipeline. Interest rate swap
agreements are also used to convert floating rates to fixed rates. The Company has no market risk sensitive instruments held for trading purposes.

Management
actively monitors and manages its exposure to interest rate risk. Analyses are performed for various interest rate scenarios to capture the expected economic change in market
value of rate sensitive assets, liabilities and commitments.

In
the normal course of business, the Company also faces risks that are either nonfinancial and or nonquantifiable. Such risks include credit risk and legal risk and are not included in
the following table.

|                                                 |  | December 31, Expected Maturity Date |            
|------------------------------------------------ |  | ----------------------------------- | -----------
|
|Rate sensitive assets:                           |  |                                     |            
|Cash and cash equivalents                        |  | $                                   | 18,707,000 
|Mortgage loans held for sale                     |  |                                     | 65,895,000 
|Average interest rate                            |  |                                     | 6.70%      
|Originated mortgage servicing rights             |  |                                     | 275,000    
|Average interest rate (underlying portfolio)     |  |                                     | 6.85%      
|Rate sensitive liabilities:                      |  |                                     |            
|Long term debtfixed rate                        |  |                                     | 2,976,000  
|Average interest rate                            |  |                                     | 7.51%      
|Long-term debtvariable rate                     |  |                                     | 2,041,000  
|Average interest rate                            |  |                                     | 5.75%      
|Notes payable, bank                              |  |                                     | 62,179,000 
|Average interest rate                            |  |                                     | 3.67%      
|Rate sensitive derivative financial instruments: |  |                                     |            
|Pay fixed/receive variable interest rate swap    |  |                                     | 12,447,000 
|Average pay rate                                 |  |                                     | 3.33%      
|Average receive rate                             |  |                                     | 5.97%      
|Commitments to extend credit:                    |  |                                     |            
|Rate locked                                      |  |                                     | 61,194,000 
|Average interest rate                            |  |                                     | 6.67%      
|Floating rate                                    |  |                                     | 69,106,000 
|Forward sale commitments                         |  |                                     | 126,575,000
|Average interest rate                            |  |                                     | 6.67%      

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and schedule listed in Item 14 hereof and the report of independent auditors included in this report on Pages F-1 through F-27 are
incorporated herein by reference.

ITEM 9. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

18

---

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The section under the heading "Business Experience of Nominees and Executive Officers" in the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held May 21, 2002 is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION

The section under the heading "Executive Compensation and Other Information" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
May 21, 2002 is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The section under the heading "Principal Stockholders and Stockholdings of Management" in the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held May 21, 2002 is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The section under the heading "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
May 21, 2002 is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

|(a) 1. Financial Statements:                                                                 |  |     
|-------------------------------------------------------------------------------------------- |  | ----
|                                                                                             |  | Page
|Consolidated Balance SheetsDecember 31, 2001 and 2000                                       |  | F-2 
|Consolidated Statements of IncomeYears ended December 31, 2001, 2000 and 1999               |  | F-4 
|Consolidated Statements of Stockholders' EquityYears ended December 31, 2001, 2000 and 1999 |  | F-5 
|Consolidated Statements of Cash FlowsYears ended December 31, 2001, 2000 and 1999           |  | F-6 
|Notes to Consolidated Financial Statements                                                   |  | F-8 
|2. Financial Statement Schedule:                                                             |  |     
|Schedule II Valuation and Qualifying Accounts                                                |  | F-27

All
other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.

3.
Exhibits (See the Index to Exhibits included elsewhere in this Report).

(b) Reports
on Form 8-K:

None

19

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | THE DEWOLFE COMPANIES, INC.
| |  | ---------------------------
| |  | By:                        

Date:
March 18, 2002

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|/s/RICHARD B. DEWOLFERichard B. DeWolfe Chairman, Board of Directors,
Chief Executive Officer and
a Director (Principal
Executive Officer)Date: March 18, 2002
|--------------------------------------------------------------------------------------------------------------------------------------------------------------
|/s/JAMES A. MARCOTTEJames A. Marcotte Chief Financial Officer
(Principal Financial Officer)Date: March 18, 2002                                               
|/s/PAUL R. DEL ROSSIPaul R. Del Rossi DirectorDate: March 18,
2002                                                                                            
|/s/A. CLINTON ALLENA. Clinton Allen, III DirectorDate: March 18,
2002                                                                                         
|/s/R. ROBERT POPEOR. Robert Popeo DirectorDate: March 18,
2002                                                                                                
|/s/ROBERT N. SIBCYR. Robert N. Sibcy DirectorDate: March 18,
2002                                                                                             

20

---



Report of Independent Auditors

The
Board of Directors and Stockholders
The DeWolfe Companies, Inc.

We
have audited the accompanying consolidated balance sheets of The DeWolfe Companies, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The DeWolfe Companies, Inc. at December 31,
2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As
discussed in Note 1 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative financial instruments, and in 2000 changed its method
of revenue recognition for residential real estate brokerage commissions.



Boston,
Massachusetts
January 25, 2002

F-1

---

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

|                        |                                                                                                                                                          | December 31, |                           
|----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | --------------------------
|
|CURRENT ASSETS:         |                                                                                                                                                          |              |                           
|                        | Cash and cash equivalents                                                                                                                                |              | $                         
|                        | Mortgage loans held for sale                                                                                                                             |              |                           
|                        | Prepaid expenses and other current assets                                                                                                                |              |                           
|                        |                                                                                                                                                          |              |                           
|                        |                                                                                                                                                          |              | TOTAL CURRENT ASSETS      
|                        |                                                                                                                                                          |              |                           
|PROPERTY AND EQUIPMENT: |                                                                                                                                                          |              |                           
|                        | Land                                                                                                                                                     |              |                           
|                        | Building and improvements                                                                                                                                |              |                           
|                        | Furniture and equipment                                                                                                                                  |              |                           
|                        | Leasehold improvements                                                                                                                                   |              |                           
|                        |                                                                                                                                                          |              |                           
|                        |                                                                                                                                                          |              | 21,703,000                
|                        | Accumulated depreciation and amortization                                                                                                                |              |                           
|                        |                                                                                                                                                          |              |                           
|                        |                                                                                                                                                          |              | NET PROPERTY AND EQUIPMENT
|OTHER ASSETS:           |                                                                                                                                                          |              |                           
|                        | Note receivable from affiliate                                                                                                                           |              |                           
|                        | Excess of cost over value in net assets acquired, net of accumulated amortization of $3,750,000 at December 31, 2001 and $2,817,000 at December 31, 2000 |              |                           
|                        | Non-compete and consulting agreements, net of accumulated amortization of $1,287,000 at December 31, 2001 and $969,000 at December 31, 2000              |              |                           
|                        | Insurance intangible, net of accumulated amortization of $15,000 at December 31, 2001                                                                    |              |                           
|                        | Originated mortgage servicing rights, net                                                                                                                |              |                           
|                        | Net deferred tax assets                                                                                                                                  |              |                           
|                        | Security deposits and other assets                                                                                                                       |              |                           
|                        |                                                                                                                                                          |              |                           
|                        |                                                                                                                                                          |              | TOTAL OTHER ASSETS        
|                        |                                                                                                                                                          |              |                           
|                        |                                                                                                                                                          |              | TOTAL ASSETS              
|                        |                                                                                                                                                          |              |                           

See
notes to consolidated financial statements.

F-2

---

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

LIABILITIES AND STOCKHOLDERS' EQUITY

|                              |                                                                                                                                                           | December 31, |                                           
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------------------------------------
|
|CURRENT LIABILITIES:          |                                                                                                                                                           |              |                                           
|                              | Note payablebank                                                                                                                                         |              | $                                         
|                              | Accounts payable                                                                                                                                          |              |                                           
|                              | Dividend payable                                                                                                                                          |              |                                           
|                              | Accrued expenses                                                                                                                                          |              |                                           
|                              | Deferred mortgage fee income                                                                                                                              |              |                                           
|                              | Current portion of long-term debt                                                                                                                         |              |                                           
|                              | Current portion of obligations under capital leases                                                                                                       |              |                                           
|                              |                                                                                                                                                           |              |                                           
|                              |                                                                                                                                                           |              | TOTAL CURRENT LIABILITIES                 
|                              | Long-term debt, net of current portion                                                                                                                    |              |                                           
|                              | Obligations under capital leases, net of current portion                                                                                                  |              |                                           
|                              | Non-compete agreements and consulting agreements payable                                                                                                  |              |                                           
|                              |                                                                                                                                                           |              |                                           
|                              |                                                                                                                                                           |              | TOTAL LIABILITIES                         
|                              |                                                                                                                                                           |              |                                           
|COMMITMENTS AND CONTINGENCIES |                                                                                                                                                           |              |                                           
|STOCKHOLDERS' EQUITY          |                                                                                                                                                           |              |                                           
|                              | Preferred stock, $1.00 par value; 3,000,000 authorized;                                                                                                   |              |                                           
|                              | None outstanding                                                                                                                                          |              |                                           
|                              | Common stock, $.01 par value; 10,000,000 shares authorized; 3,723,876 shares issued at December 31, 2001 and 3,658,544 shares issued at December 31, 2000 |              |                                           
|                              | Additional paid-in capital                                                                                                                                |              |                                           
|                              | Treasury stock (291,118 shares at December 31, 2001 and 263,318 shares at December 31, 2000), at cost                                                     |              |                                           
|                              | Notes receivable from sale of stock                                                                                                                       |              |                                           
|                              | Accumulated other comprehensive income                                                                                                                    |              |                                           
|                              | Retained earnings                                                                                                                                         |              |                                           
|                              |                                                                                                                                                           |              |                                           
|                              |                                                                                                                                                           |              | TOTAL STOCKHOLDERS' EQUITY                
|                              |                                                                                                                                                           |              |                                           
|                              |                                                                                                                                                           |              | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|                              |                                                                                                                                                           |              |                                           

See
notes to consolidated financial statements.

F-3

---

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

|                                                                                       |                                                                   | Years Ended December 31, |                          
|-------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------ | -------------------------
|
|REVENUES:                                                                              |                                                                   |                          |                          
|                                                                                       | Real estate brokerage                                             |                          | $                        
|                                                                                       | Mortgage                                                          |                          |                          
|                                                                                       | Insurance                                                         |                          |                          
|                                                                                       | Other                                                             |                          |                          
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | TOTAL REVENUES           
|                                                                                       | Commission expense                                                |                          |                          
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | NET REVENUES             
|OPERATING EXPENSES:                                                                    |                                                                   |                          |                          
|                                                                                       | Compensation and benefits                                         |                          |                          
|                                                                                       | Facilities                                                        |                          |                          
|                                                                                       | General and administrative                                        |                          |                          
|                                                                                       | Marketing and promotion                                           |                          |                          
|                                                                                       | Communications                                                    |                          |                          
|                                                                                       | Nonemployee stock options                                         |                          |                          
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | TOTAL OPERATING EXPENSES:
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | OPERATING INCOME         
|OTHER INCOME (EXPENSES):                                                               |                                                                   |                          |                          
|                                                                                       | Interest expense                                                  |                          |                          
|                                                                                       | Gain on sale of investments                                       |                          |                          
|                                                                                       | Interest income                                                   |                          |                          
|                                                                                       |                                                                   |                          |                          
|INCOME BEFORE INCOME TAXES                                                             |                                                                   |                          | 11,811,000               
|                                                                                       | Income taxes                                                      |                          |                          
|                                                                                       |                                                                   |                          |                          
|INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                      |                                                                   |                          | 6,616,000                
|CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF TAX BENEFIT OF $2,637,000) |                                                                   |                          |                         
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | NET INCOME               
|                                                                                       |                                                                   |                          |                          
|BASIC EARNINGS PER SHARE:                                                              |                                                                   |                          |                          
|                                                                                       | Income before cumulative effect of change in accounting principle |                          | $                        
|                                                                                       | Cumulative effect of change in accounting principle               |                          |                          
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | NET INCOME               
|                                                                                       |                                                                   |                          |                          
|DILUTED EARNINGS PER SHARE:                                                            |                                                                   |                          |                          
|                                                                                       | Income before cumulative effect of change in accounting principle |                          | $                        
|                                                                                       | Cumulative effect of change in accounting principle               |                          |                          
|                                                                                       |                                                                   |                          |                          
|                                                                                       |                                                                   |                          | NET INCOME               
|                                                                                       |                                                                   |                          |                          
|                                                                                       | Basic weighted average shares outstanding                         |                          |                          
|                                                                                       | Diluted weighted average shares outstanding                       |                          |                          

See
notes to consolidated financial statements.

F-4

---

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

|                                                                                                             |  | Common Stock |        | Additional Paid-in Capital |   | Treasury Stock at Cost |  | Notes Receivable from Sale of Stock |            | Retained Earnings |   | Accumulated
Other Comprehensive Income (Loss) |   | Total Stockholders' Equity |           
|------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | -------------------------- | - | ---------------------- |  | ----------------------------------- | ---------- | ----------------- | - | --------------------------------------------- | - | -------------------------- | ----------
|BALANCE AT DECEMBER 31, 1998                                                                                 |  | $            | 35,000 |                            | $ | 6,842,000              |  | $                                   | (1,439,000 | )                 | $ | (270,000                                      | ) | $                          | 7,903,000 
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Issuance of Common Stock                                                                                     |  |              | 1,000  |                            |   | 710,000                |  |                                     |           |                   |   |                                              |   |                            |          
|Purchase of Treasury Shares                                                                                  |  |              |       |                            |   |                       |  |                                     | (31,000    | )                 |   |                                              |   |                            |          
|Notes Receivable from Sale of Stock, net                                                                     |  |              |       |                            |   |                       |  |                                     |           |                   |   | (601,000                                      | ) |                            |          
|Cash Dividends Declared on Common Stock ($0.15 per share)                                                    |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | (506,000  
|Effect of Issuance of Stock Options                                                                          |  |              |       |                            |   | 71,000                 |  |                                     |           |                   |   |                                              |   |                            |          
|Net Income                                                                                                   |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | 4,984,000 
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|BALANCE AT DECEMBER 31, 1999                                                                                 |  |              | 36,000 |                            |   | 7,623,000              |  |                                     | (1,470,000 | )                 |   | (871,000                                      | ) |                            | 12,381,000
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Issuance of Common Stock                                                                                     |  |              | 1,000  |                            |   | 177,000                |  |                                     |           |                   |   |                                              |   |                            |          
|Purchase of Treasury Shares                                                                                  |  |              |       |                            |   |                       |  |                                     | (50,000    | )                 |   |                                              |   |                            |          
|Notes Receivable from Sale of Stock, net                                                                     |  |              |       |                            |   |                       |  |                                     |           |                   |   | 2,000                                         |   |                            |          
|Cash Dividends Declared on Common Stock ($0.18 per share)                                                    |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | (610,000  
|Effect of Exercise of Stock Options                                                                          |  |              |       |                            |   | 32,000                 |  |                                     |           |                   |   |                                              |   |                            |          
|Comprehensive Income:                                                                                        |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Unrealized Appreciation on Marketable Securities (net of tax of $50,000)                                     |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|Net Income                                                                                                   |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | 1,738,000 
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Comprehensive Income                                                                                         |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|BALANCE AT DECEMBER 31, 2000                                                                                 |  |              | 37,000 |                            |   | 7,832,000              |  |                                     | (1,520,000 | )                 |   | (869,000                                      | ) |                            | 13,509,000
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Issuance of Common Stock                                                                                     |  |              |       |                            |   | 342,000                |  |                                     |           |                   |   |                                              |   |                            |          
|Purchase of Treasury Shares                                                                                  |  |              |       |                            |   |                       |  |                                     | (223,000   | )                 |   |                                              |   |                            |          
|Notes Receivable from Sale of Stock, net                                                                     |  |              |       |                            |   |                       |  |                                     |           |                   |   | (72,000                                       | ) |                            |          
|Cash Dividends Declared on Common Stock ($0.20 per share)                                                    |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | (686,000  
|Effect of Issuance of Stock Options                                                                          |  |              |       |                            |   | 161,000                |  |                                     |           |                   |   |                                              |   |                            |          
|Comprehensive Income:                                                                                        |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Cumulative Effect of Change in Accounting for Derivative Financial Instruments (net of tax of $20,000)       |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|Reclassification Adjustment for Realized Gains On Marketable Securities of $247,000 (net of tax of $109,000) |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|Unrealized Gains on Marketable Securities of $127,000 (net of tax of $56,000)                                |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|Unrealized Appreciation on Derivative Financial Instruments (net of tax of $764,000)                         |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|Net Income                                                                                                   |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            | 6,616,000 
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|Comprehensive Income                                                                                         |  |              |       |                            |   |                       |  |                                     |           |                   |   |                                              |   |                            |          
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           
|BALANCE AT DECEMBER 31, 2001                                                                                 |  | $            | 37,000 |                            | $ | 8,335,000              |  | $                                   | (1,743,000 | )                 | $ | (941,000                                      | ) | $                          | 19,439,000
|                                                                                                             |  |              |        |                            |   |                        |  |                                     |            |                   |   |                                               |   |                            |           

See notes to consolidated financial statements.

F-5

---

THE DEWOLFE COMPANIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                          |                                                                                             | Years Ended December 31,                                       |           
|----------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ----------
|
|OPERATING ACTIVITIES:                     |                                                                                             |                                                                |           
|                                          | Net Income                                                                                  |                                                                | $         
|                                          | Adjustments to reconcile net income to net cash (used in) provided by operating activities: |                                                                |           
|                                          |                                                                                             | Deferred income tax                                            |           
|                                          |                                                                                             | Depreciation                                                   |           
|                                          |                                                                                             | Amortizationnoncompete and insurance intangible               |           
|                                          |                                                                                             | Amortizationgoodwill                                          |           
|                                          |                                                                                             | Additions to valuation allowance for mortgage servicing rights |           
|                                          |                                                                                             | Gain on sale of mortgage loans, net                            |           
|                                          |                                                                                             | Gain on sale of investments                                    |           
|                                          | Change in assets and liabilities:                                                           |                                                                |           
|                                          |                                                                                             | Decrease (increase) in commissions receivable                  |           
|                                          |                                                                                             | Increase in prepaid expenses and other current assets          |           
|                                          |                                                                                             | Increase in security deposits and other assets                 |           
|                                          |                                                                                             | Mortgage loans held for sale                                   |           
|                                          |                                                                                             | Proceeds from mortgage loans sales                             |           
|                                          |                                                                                             | (Decrease) increase in commissions payable                     |           
|                                          |                                                                                             | Increase in accounts payable and accrued expenses              |           
|                                          |                                                                                             | Increase (decrease) in deferred mortgage fee income            |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             |                                                                |           
|INVESTING ACTIVITIES:                     |                                                                                             |                                                                |           
|                                          |                                                                                             | Proceeds from sale of investments                              |           
|                                          |                                                                                             | Expenditures for business combinations, net of cash acquired   |           
|                                          |                                                                                             | Expenditures for property and equipment                        |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             | Cash used in investing activities                              |           
|FINANCING ACTIVITIES:                     |                                                                                             |                                                                |           
|                                          |                                                                                             | Net borrowings (repayments) on notes payable-bank              |           
|                                          |                                                                                             | Borrowing on acquisition line of credit                        |           
|                                          |                                                                                             | Repayment of notes receivable from stockholders                |           
|                                          |                                                                                             | Repayment (issuance) of notes receivable from sale of stock    |           
|                                          |                                                                                             | Repayment of long-term debt                                    |           
|                                          |                                                                                             | Payment of cash dividends                                      |           
|                                          |                                                                                             | Issuance of common stock                                       |           
|                                          |                                                                                             | Purchase of treasury stock                                     |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             |                                                                |           
|                                          |                                                                                             |                                                                |           
|NET INCREASE IN CASH AND CASH EQUIVALENTS |                                                                                             |                                                                | 4,170,000 
|                                          |                                                                                             | Cash and cash equivalents at beginning of year                 |           
|                                          |                                                                                             |                                                                |           
|CASH AND CASH EQUIVALENTS AT END OF YEAR  |                                                                                             | $                                                              | 18,707,000
|                                          |                                                                                             |                                                                |           

See notes to consolidated financial statements.

F-6

---

|                                                              |                                                  | Years Ended December 31, |          
|------------------------------------------------------------- | ------------------------------------------------ | ------------------------ | ---------
|
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:              |                                                  |                          |          
|Leases capitalized and property and equipment financed        |                                                  | $                        | 2,725,000
|Cash paid for interest                                        |                                                  |                          | 3,176,000
|Expenditures for business combinations, net of cash acquired: |                                                  |                          |          
|                                                              | Commissions receivable                           |                          |          
|                                                              | Property and equipment, net                      |                          |          
|                                                              | Excess of cost over value in net assets acquired |                          |          
|                                                              | Insurance intangible                             |                          |          
|                                                              | Non-compete and consulting agreements            |                          |          
|                                                              | Other assets                                     |                          |          
|                                                              | Commissions payable                              |                          |          
|                                                              | Long-term debt                                   |                          |          
|                                                              | Accounts payable and accrued expenses            |                          |          
|                                                              | Additional paid-in capital                       |                          |          
|                                                              |                                                  |                          |          
|                                                              |                                                  |                          | $        
|                                                              |                                                  |                          |          

See
notes to consolidated financial statements.

F-7

---

THE DEWOLFE COMPANIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Summary of Business Operations and Significant Accounting Policies

Business Operations

The DeWolfe Companies, Inc. (together with its subsidiaries, "the Company") is a provider of integrated homeownership services, and is primarily engaged in the
business of providing sales and marketing services to consumers in connection with residential real estate transactions in Massachusetts, New Hampshire, Rhode Island, Maine, and Connecticut. In
addition, the Company originates and services residential mortgage loans, provides corporate and employee relocation services and other related services to a variety of clients, and provides insurance
products to its homeownership customers.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. Significant intercompany accounts and
transactions are eliminated in consolidation.

Revenue Recognition

The Company's real estate brokerage services principally involve providing a ready, willing and able buyer of a property to the seller. During the year ended
December 31, 2000, the Company changed its method of revenue recognition for residential real estate brokerage commissions in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements.Previously, the Company had recognized revenue when the buyer and seller of a property entered into a
contract of sale and a good faith deposit was made by the buyer. Under the new accounting method adopted retroactive to January 1, 2000, the Company now recognizes revenue upon the consumation of the
underlying real estate sale. The cumulative effect of the accounting change resulted in a charge to income of $3.7 million (net of an income tax benefit of $2.6 million), which is included in income
for the year ended December 31, 2000. The effect of the change on the year-ended 2000 was to decrease income before cumulative effect of the accounting change by $64,000 ($0.02 and $0.01 per basic and
diluted shares, respectively).

The
following table shows the amounts reported and pro forma amounts that would have been reported if SAB 101 had been applied retroactively:

Year Ended
December 31, 1999(Dollar amounts in thousands)Pro Forma

As ReportedNet Income

$
4,266

$
4,984Basic Earnings Per Share

$
1.27

$
1.49Diluted Earnings Per Share

$
1.21

$
1.41


The cumulative effect adjustment as of January 1, 2000 included the reversal of net real estate brokerage commission revenues of approximately $6.4 million. Substantially all of the
revenues were subsequently recognized in 2000, principally in the first quarter.

Mortgage
loan origination revenues, offset by direct loan origination costs, are deferred and the net amount is recognized as a component of gain on sale of mortgage loans when the sale
of the loan has been consummated. Mortgage loan origination revenues consist primarily of loan origination, application and investor fees paid by the borrowers, originated mortgage servicing rights
capitalized and service release

F-8

---

premiums paid by the investors. Direct loan origination costs consist of commissions paid to the Company's mortgage consultants and appraisal fees and credit report fees paid to third parties.
Interest on mortgage loans held for sale is recognized as income when earned.

Originated
mortgage servicing rights are capitalized based on their fair value and are amortized in proportion to, and over the period of, estimated net servicing income. Amortization is
adjusted prospectively to reflect changes in prepayment experience. The Company periodically evaluates and measures the value of the servicing rights to determine impairment. In determining the value,
the Company stratifies the servicing rights based on predominant risk characteristics of the underlying loans. The characteristics that the Company uses are interest rate, date of origination and loan
term. Impairment is recognized in a valuation allowance in the period of impairment.

Servicing
income represents net fees earned for servicing real estate mortgage loans owned by outside investors and is recognized as income when received.

Insurance
revenue is generally recognized as of the effective date of the insurance policy. Contingent insurance revenue is recognized as income when received.

Mortgage Loans Held for Sale

Mortgage loans held for sale are carried at the lower of cost or market determined on a net aggregate basis. Forward sale commitments are used to protect the
value of mortgage loans held for sale and loan applications with interest rate commitments from increases in interest rates.

Fair Value Disclosures

Financial Accounting Standards Board Statement No. 107,Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value
of the Company.

Property and Equipment

Property and equipment is stated at cost, except for equipment under capital leases, which is recorded at the net present value of the minimum lease payments at
inception of the lease.

Depreciation
and amortization is provided using the straight-line method over the estimated useful asset lives for owned assets (three to thirty years), the related lease term for
equipment under capital leases (three to five years), and the shorter of the lease term or estimated useful life of the asset for leasehold improvements.

Accounting for Computer Software Costs

In accordance with Statement of Position No. 98-1,Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use, the Company capitalizes qualified software costs and amortizes these costs over three to five years.

F-9

---

Derivative Financial Instruments

As of January 1, 2001, the Company adopted Financial Accounting Standards Board Statement No. 133,Accounting for Derivative Instruments
and Hedging Activities(Statement 133) which was issued in June, 1998 and its amendments Statements 137,Accounting for Derivative Instruments and
Hedging ActivitiesDeferral of the Effective Date of FASB Statement No. 133, and 138,Accounting for Derivative Instruments and Certain
Hedging Activities, issued in June 1999 and June 2000, respectively (collectively referred to as Statement 133).

As
a result of adoption of Statement 133, the Company recognizes all derivative financial instruments, such as interest rate swap contracts and forward sale commitments, in the
consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. Under Statement 133, changes in the fair value of derivative financial instruments are
either recognized periodically in income or in shareholders' equity as a component of comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and
if so, whether it qualifies as a fair value or cash flow hedge.

The
Company accounted for the adoption of Statement 133 as a cumulative effect of a change in accounting principle, which resulted in an increase of $26,000, net of applicable income
taxes of $20,000, to other comprehensive income.

The
Company has designated its derivative instruments as cash flow hedges and gains or losses on these instruments are recognized in shareholders' equity as a component of comprehensive
income.

The
Company's derivatives include (1) forward sale commitments which are used to hedge the anticipated future sale of mortgage loans and generally are entered into for periods of under
three months and (2) an interest rate swap agreement which matures on April 30, 2002 with the notional amount of $12.4 million to hedge the anticipated future cash flows related to the Company's
acquisition line of credit.

The
Company does not account for outstanding commitments to extend credit as derivatives. The Financial Accounting Standards Board is currently evaluating whether such commitments should
be accounted for as derivatives. The outcome of these deliberations could result in a change in the Company's accounting in a future period.

Goodwill and Other Intangible Assets

The excess of cost over value in net assets of companies acquired is currently being amortized using the straight-line method over fifteen to twenty-year periods
and is reviewed on an ongoing basis by the Company's management based on several factors, including the Company's projection of undiscounted operating cash flows from such acquisitions. If an
impairment of the carrying value were identified by this review, the Company would adjust the carrying value of the excess of cost over value in net assets acquired to its estimated fair value.

Costs
related to non-compete and consulting agreements entered into as part of the Company's acquisition of real estate agencies are being amortized over the period of the respective
agreements which range from three to five years. The Company has recorded $901 thousand as an insurance intangible asset representing the value of insurance policies acquired. The insurance intangible
is being amortized over a 15 year period.

F-10

---

In
July 2001, the Financial Accounting Standards Board issued Statement No. 142,Goodwill and Other Intangibles(Statement 142). Under
Statement 142, the excess of cost over value in net assets and indefinite lived intangible assets will no longer be amortized but will be reviewed periodically for
impairment. The Company is required to adopt Statement 142 on January 1, 2002. In connection with the adoption of Statement 142, approximately $919 thousand of the excess cost over value of net assets
will be reclassified as an amortizable insurance intangible. The Company has preliminarily concluded that no impairment writedown will be required in connection with the adoption of Statement 142. The
Company has adopted Statement 142 for all current year acquisitions, and is not amortizing the excess of cost over value in net assets related to these acquisitions. The Company's non-compete and
consulting agreements and insurance intangible will continue to be accounted for as assets subject to amortization.

Stock Options

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to
Employees("APB 25") in accounting for its stock-based compensation plans, rather than the alternative fair value accounting method provided for under Financial Accounting
Standards Board Statement No. 123,Accounting for Stock-Based Compensation(Statement No. 123). Under APB 25, when the exercise price of options granted
under these plans equals the market price of the underlying stock on the date of grant (as is the case with the Company's options), no compensation expense is required.

Non-Employee Stock Options

The Company accounts for stock options granted to non-employees in accordance with Statement 123. Under Statement 123, the Company expenses options granted to
non-employees over the vesting term of the options using the fair value of the options as of the financial statement date.

Advertising

Advertising costs are expensed as incurred and are classified as marketing and promotion on the accompanying Consolidated Statements of Income.

Income Taxes

Income taxes have been provided using the liability method in accordance with the requirements of Financial Accounting Standards Board Statement No. 109, Accounting For Income Taxes.

Statement of Cash Flows

For purposes of the statement of cash flows, cash includes cash and short-term highly liquid investments with original maturities of three months or less.

Basic Earnings per Share and Diluted Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the assumed conversion of all dilutive securities, such as options and warrants.

F-11

---

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material.

Reclassifications

Certain prior year balances have been reclassified to conform with current year presentation.

Note 2Acquisitions

The Company has expanded its operations through the acquisition of 13 independent real estate agencies in the three year period ended December 31, 2001 (1 in
2001, 2 in 2000 and 10 in 1999). Additionally, in August 2001, The DeWolfe Insurance Agency, Inc. acquired the personal lines business of the AON Private Risk Management Insurance Agency, Inc., which
included approximately 7,400 policyholders.

The
total purchase price of acquisitions in 2001 was $1.4 million. The agreements also require additional payments to be made not to exceed $150,000 if specific operating goals are
achieved by the acquired entities. The total purchase price of the acquisitions in 2000 was $900,000. The agreements also require additional payments to be made not to exceed $700,000 if specific
operating goals are achieved by the acquired entities. The total purchase price of the acquisitions in 1999 was $8.7 million and additional payments not to exceed $2.3 million if specific operating
goals are achieved by the acquired entities. The acquisitions were funded by borrowings from the Company's acquisition line of credit and by loans from the principals of the acquired companies. The
Company recorded the present value of minimum estimated payments to be made pursuant to non-competition, consulting and cooperation agreements related to acquisitions of $12,000 in 2001, $30,000 in
2000, and $1.4 million in 1999. Additionally, as a result of the Company's acquisitions, the Company recorded the excess of cost over value in net assets acquired of $329,000 in 2001, and $1.1 million
and $5.7 million during 2000, and 1999, respectively. Acquisition related costs of $20,000, $56,000 and $660,000 were incurred in 2001, 2000 and 1999, respectively.

In
connection with the acquisition of the assets of various real estate agencies, the Company entered into non-competition, consulting and cooperation agreements that expire at various
dates through August 2004. Future payments, as called for in the agreements, are contingent upon the fulfillment of the terms of these agreements by the sellers and provide for certain percentage
payments of the net commission income of various sales office locations. During 2001, 2000 and 1999, payments of $318,000, $375,000, and $744,000, respectively, were expensed. The annual minimum
commitment for these payments, assuming the contracted commitments are fulfilled, will be approximately $44,000 in 2002, and $40,000 in 2003, and $40,000 in 2004.

F-12

---

The
following table shows the Company's unaudited consolidated results of operations for the year ended December 31, 1999 on a pro forma basis assuming the 1999 acquisitions had occurred
as of January 1, 1999. The effect of the 2001 and 2000 acquisitions on pro forma results of operations was not material.

Year Ended
December 31, 1999(in thousands except
per share amounts)Revenues

$
188,977Net Income

$
5,337Basic Earnings Per Share

$
1.59Diluted Earnings Per Share

$
1.51


Note 3Related Party Transactions

The Company has various advances and notes receivables with related parties as described below:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Notes receivable from the Company's principal stockholder and spouse, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The notes
are secured by a pledge of certain shares of common stock of the Company. Principal and interest are due at various dates through April 2002. The notes receivable are carried as a reduction of stockholders' equity. |  | $           
|Notes receivable from an executive officer of the Company, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The notes are secured by a pledge of certain
shares of common stock of the Company. Principal and interest are due at various dates through April 2002. The note receivable is carried as a reduction of stockholders' equity.              |  |             
|Note receivable from an executive officer of the Company, with interest at prime plus 0.25%. At December 31, 2001 the rate in effect was 5.00%. The proceeds were used to purchase the Company's stock. The note was secured by a pledge of certain shares
of common stock of the Company, and was due in February 2002, but was repaid before maturity. The note receivable was carried as a reduction of stockholders' equity.                     |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |             
|Total notes receivable from sale of stock                                                                                                                                                                                                                                                                                                                                                                                                            |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |             

F-13

---

|Note receivable from an entity controlled by the Company's principal stockholder. The note is collateralized by a mortgage lien on the commercial property that was leased to the Company until January, 1999. The Company provided rent payments for this
property of $3,000 in 1999. |  |   | 28,000  |  |   | 28,000 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------- |  | - | -------
|                                                                                                                                                                                                                                                                                       |  |   |         | 
|Total advances and notes receivable                                                                                                                                                                                                                                                    |  | $ | 969,000 |  | $ | 897,000
|                                                                                                                                                                                                                                                                                       |  |   |         | 

Note 4Indebtedness

In June 2001, the Company entered into a $40.0 million mortgage warehouse line of credit with Comerica Bank to replace the $40.0 million mortgage warehouse line
of credit with First Union National Bank. The purpose of the facility is to provide financing for mortgage loans that it originates. The line of credit is due on demand and requires monthly interest
payments at the Federal Funds rate plus 1.50% for balances up to $25.0 million, and interest payments at the Federal Funds rate plus 1.30% for balances exceeding $25.0 million. The amount of the
facility was increased to $50.0 million in July 2001. During the fourth quarter of 2001, the amount of the facility was temporarily increased to $75 million through February 1, 2002. At December 31,
2001, the Federal Funds rate in effect was 2.25%. The balances due at December 31, 2001 and 2000 were $62.2 million and $22.9 million, respectively.

The
Company has various credit arrangements with Fleet Bank, N.A., which include a $20.0 million acquisition line of credit, a revolving line of credit of $5.0 million, a relocation
revolving line of credit of $5.0 million, and an equipment lease line of credit and chattel mortgage financing of $5.0 million. The credit agreements require the Company to obtain the written consent
of the lender prior to paying dividends.

The
following table describes the detail of the indebtedness:

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  | December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Note payable (acquisition facility note) maturing on April 30, 2006. The note requires interest only payments at the Fleet Bank, N.A. prime rate (4.75% at December 31, 2001) for $12,447,000 of the note and 4.72%
on the remainder of the note until April 30, 2002 (see "interest rate swap" information below). On April 30, 2002, at the Company's option, the interest rate will be either the Fleet Bank prime rate plus 1.0% or a fixed rate of interest
specified by Fleet Bank, N.A. The principal balance of the note on April 30, 2002 will be due in sixty installments as follows: 59 equal principal installments each equal in amount to the principal balance on April 30, 2002 divided by sixty
and one final principal installment in an amount equal to the then unpaid principal amount of all acquisition facility loans. This note is secured by all personal and real property of the Company, except for the assets of DeWolfe Mortgage Services,
Inc. |  | $           
|Note payable (revolving line of credit) maturing on April 30, 2002. The note requires monthly interest only payments, based on the Company's option, of either the Fleet Bank, N.A. prime rate or the LIBOR rate plus 1.25%. This note is secured by all
personal and real property of the Company, except for the assets of DeWolfe Mortgage Services, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |             

F-14

---

|Note payable (relocation revolving line of credit ) maturing on April 30, 2002. The note requires monthly interest only payments, based on the Company's option of either the Fleet Bank, N.A. prime rate or the LIBOR rate plus 1.25%. This note is
secured by all personal and real property of the company, except for the assets of DeWolfe Mortgage Services, Inc. |  |   |           |  |   |          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- |  | - | ----------
|Promissory note payable (due to principal of company acquired in 1998) in monthly principal and interest payments of $12,524 at an interest rate of 7.50% maturing in May 2003.                                                                                                                                                                                         |  |   | 201,000    |  |   | 359,000   
|Promissory notes payable (due to principals of companies acquired in 1999) in monthly principal and interest payments of $35,541 and annual principal and interest payments of $100,000 at interest rates ranging from 7.75% to 8.50%, maturing between
October, 2002 and May, 2004.                                                                                    |  |   | 941,000    |  |   | 1,374,000 
|Promissory notes payable (due to principals of companies acquired in 2000) in monthly principle and interest payments of $3,750 and annual principal and interest payments of $90,000 at interest rates ranging from 9.00% to 9.50%, maturing at various
dates in 2004.                                                                                                 |  |   | 316,000    |  |   | 384,000   
|Promissory notes payable (due to principal of company acquired in 2001) in annual principal and interest payments of $22,500 at an interest rates of 6.50%, maturing in January 2005.                                                                                                                                                                                   |  |   | 200,000    |  |   |          
|Chattel promissory notes payable maturing at various dates through November, 2004. The notes require monthly principal and interest payments of $207,353 at interest rates from 6.06% to 9.26%. The notes are secured by the underlying furniture and
equipment.                                                                                                        |  |   | 3,812,000  |  |   | 3,095,000 
|Mortgage note payable in monthly principal and interest payments of $4,297 to maturity on May 1, 2009 with interest at 8.00%. The note is secured by land and building housing the Westford, MA sales office.                                                                                                                                                           |  |   | 235,000    |  |   | 266,000   
|Unsecured note payable in monthly principal and interest payments of approximately $11,000, maturing in February, 2003 with interest at 14.3%. This note is guaranteed by the chairman and principal stockholder.                                                                                                                                                       |  |   | 144,000    |  |   | 249,000   
|Unsecured payment plan agreement with Oracle Credit Corporation payable in quarterly principal and interest payments of $31,864 with interest at 7.50%.                                                                                                                                                                                                                 |  |   |           |  |   | 66,000    
|Obligations under capital leases (Note 5)                                                                                                                                                                                                                                                                                                                               |  |   | 125,000    |  |   | 435,000   
|                                                                                                                                                                                                                                                                                                                                                                        |  |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                        |  |   | 19,581,000 |  |   | 18,675,000
|Less current portion                                                                                                                                                                                                                                                                                                                                                    |  |   | 5,017,000  |  |   | 4,508,000 
|                                                                                                                                                                                                                                                                                                                                                                        |  |   |            | 
|                                                                                                                                                                                                                                                                                                                                                                        |  | $ | 14,564,000 |  | $ | 14,167,000
|                                                                                                                                                                                                                                                                                                                                                                        |  |   |            | 

The Company has entered into an interest rate swap agreement in the notional amount of $12,447,000 to reduce the impact of increases in the
interest rate on its borrowings under its variable rate acquisition line of credit with Fleet Bank, N.A. The agreement effectively entitles the Company to convert its variable rate agreement to a
fixed rate of 4.72% on borrowings under the facility up to $12,447,000 through April 30, 2002. Payments received or paid as a result of the swap are accrued as a reduction of, or an increase to,
interest expense on the variable rate line of credit.

F-15

---

Aggregate
annual maturities of long-term debt as of December 31, 2001, are as follows:

2002

$
5,017,0002003


4,699,0002004


3,565,0002005


2,817,0002006


2,768,000Thereafter


715,000$
19,581,000


Note 5Commitments and Contingencies

Non-Competition and Consulting Agreements

In connection with the acquisition of the assets of various real estate agencies, the Company entered into non-competition, consulting and cooperation agreements
that expire at various dates through August 2004. Future payments, as called for in the agreements, are contingent upon the fulfillment of the terms of these agreements by the sellers and provide for
certain percentage payments of the net commission income of various sales office locations. During 2001, 2000 and 1999, payments of $318,000, $375,000, and $744,000, respectively, were expensed. The
annual minimum commitment for these payments, assuming the contracted commitments are fulfilled, will be approximately $44,000 in 2002, $40,000 in 2003, and $40,000 in 2004.

Funds Held in Escrow

The Company acts as escrow agent in connection with the performance of its real estate services. Accordingly, the Company held escrow funds totaling $15.0 million
and $16.5 million at December 31, 2001 and 2000, respectively. These funds are not recorded in the Company's consolidated financial statements.

Lease Commitments

The Company leases office facilities under operating leases that expire at various dates through 2010. The Company anticipates renewing or replacing leases that
expire in the normal course of business. The terms of the leases provide for the payment of minimum annual rentals and generally for the payment of insurance, maintenance, and certain other operating
expenses. The Company also leases various items of equipment used for sales and administrative activities. The leases expire at various dates through 2003. Leases that meet criteria for capitalization
have been recorded as capital leases.

F-16

---

The
following is a schedule of the future minimum payments under operating and capital leases for each of the five years in the period ending December 31, 2006 and thereafter:

Capital
Leases

Operating
Leases2002

$
103,000

$
6,319,0002003


29,000


4,865,0002004





2,676,0002005





1,067,0002006





350,000Thereafter





466,000Total minimum lease payments


132,000

$
15,743,000Less amount representing interest at various rates from 7.5% to 15.5%


7,000Present value of minimum lease payments

$
125,000


Rent
expense under the non-cancelable operating leases was $6.6 million in 2001, $6.5 million in 2000 and $6.1 million in 1999.

Equipment
and improvements recorded under capital leases, which are included with company-owned property and equipment at December 31, 2001 and 2000, totaled $90,000 and $328,000,
respectively, net of accumulated amortization at those dates of $2.7 million and $2.5 million, respectively.

Commitments and Contingencies with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit to customers and
forward sale commitments to sell mortgage loans to investors. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial
statements. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The
Company uses the same credit policies in making commitments and conditional obligations as it does for making loans. In the opinion of management, the Company's outstanding
commitments do not reflect any unusual risk.

The
contract or notional amount of commitments outstanding are as follows:

|                                                                                           |                                          | December 31,
|------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------
|
|Financial instruments whose contract amounts represent credit risk:                        |                                          |             
|                                                                                           | Rate locked commitments to extend credit |             
|Financial instruments whose notional or contract amounts exceed the amount of credit risk: |                                          |             
|                                                                                           | Forward sale commitments                 |             

F-17

---

Floating
rate commitments to extend credit totalled $69.1 million and $73.0 million at December 31, 2001 and 2000, respectively.

Commitments and Contingencies with Off-Balance Sheet Risk

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. Loan applications must be approved by the Company's underwriting department,
before a commitment is issued, for compliance with underwriting criteria of FNMA, FHLMC, or other investors.

Forward
sale commitments are contracts for the future delivery of loans or securities at a specific future date, at a specified price and yield, and are entered into to reduce market
risk associated with originating and holding loans for sale by protecting the value of the anticipated closing of loan applications for which the interest rate has been locked by the borrower. These
loans usually close within three months from the time of the application. The risks associated with forward sale commitments arise from the possible inability of the counterparties to meet the
contract terms, or the Company's inability to generate loans to fulfill the contracts.

The
Company sells, without recourse, all its mortgage loan production to investors.

Other Contingencies

The Company is currently a defendant in certain litigation arising in the ordinary course of business. It is management's opinion that the outcome of these
actions will not have a material effect on operations or the financial condition of the Company.

Note 6Fair Value of Financial Instruments

The following table represents the carrying amounts and estimated fair values of the Company's financial instruments:

|                       |                                           | December 31,
|---------------------- | ----------------------------------------- | ------------
|
|
|Financial Assets:      |                                           |             
|                       | Cash and cash equivalents                 |             
|                       | Mortgage loans held for sale              |             
|                       | Originated mortgage servicing rights, net |             
|                       |                                           |             
|                       |                                           |             
|                       |                                           |             
|Financial Liabilities: |                                           |             
|                       | Long-term debt                            |             
|                       | Note payablebank                         |             
|                       |                                           |             
|                       |                                           |             
|                       |                                           |             

F-18

---

Estimation of Fair Values

The following notes summarize the major methods and assumptions used in estimating the fair values of financial instruments shown above and the Company's
commitment to extend credit and forward sale commitments.

Cash and cash equivalents

The fair value of cash and cash equivalents approximates the carrying amount as a result of the highly liquid and short-term nature of the instruments.

Mortgage loans held for sale

The fair value of mortgage loans held for sale was determined using the specified prices to be realized based on the Company's forward sale commitment contracts.

Originated mortgage servicing rights

The fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of estimated expected future net servicing
cash flows. The Company utilized assumptions that market participants would use in their estimates of future servicing income and expense. The significant assumptions utilized in the valuation were
discount rate, prepayment estimates, and cost to service.

Note payable-bank and long-term debt

The fair value of the note payable-bank is stated at carrying amount as a result of the short-term nature of the instrument and the variable interest rate. The
fair value of long-term debt reflects current rates for similar debt. The fair value of the interest rate swap agreement reflects a loss of $119,000 and a gain of $6,000 at December 31, 2001 and 2000,
respectively, based on quoted market prices.

Commitments to extend credit

The fair value of the Company's commitments to extend credit is estimated by comparing the Company's cost to acquire mortgages to the current price for similar
mortgage loans, taking into account the terms of the commitments and creditworthiness of the counterparties, but not giving effect to forward sale commitments. For fixed rate loan commitments, fair
value also considers the difference between the current levels of interest rates and the committed rates. The fair value of the Company's commitments to extend credit reflect a loss of $115,000 and a
gain of $173,000, at December 31, 2001 and 2000, respectively.

Forward sale commitments

The fair value of forward sale commitments is estimated to be the amount that the Company would receive or pay to terminate the forward sale commitments at the
reporting date based on market prices for similar financial instruments. The fair value of the Company's forward sale commitments reflect gains of $2.0 million and $41,000 at December 31, 2001 and
2000, respectively. The fair value estimates of the Company's forward sale commitments are estimated without consideration of the future earnings attributable to loans that have been or will be
originated to satisfy the forward sale commitments.

F-19

---

Note 7Retirement Plans

Effective December 1, 1996, the Company established a qualified 401(k) retirement plan for the benefit of eligible employees. The Company has made discretionary
contributions to the plan by matching 25% of employee contributions (up to 6% of individual employee income) in 2001, 2000 and 1999. The Company contributed $259,000, $205,000 and $181,000 to this
plan in 2001, 2000, and 1999, respectively.

Note 8Income Taxes

Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2001 and 2000 are as follows:

2001

2000Current deferred tax assets (liabilities):Real estate revenues

$
663,000

$
Mortgage servicing revenues


(106,000
)

Other


16,000


$
573,000

$



2001

2000Long-term deferred tax assets (liabilities):Book over tax depreciation

$
1,281,000

$
828,000Real estate revenues


1,325,000


1,886,000Mortgage servicing revenues


(212,000
)

Allowance for doubtful accounts


11,000


11,000Other


72,000


(65,000
)$
2,477,000

$
2,660,000


The
provision for income taxes for 2001, 2000 and 1999 consisted of the following:

2001

2000

1999Current

Deferred

Current

Deferred

Current

DeferredFederal

$
4,267,000

$
(298,000
)
$
3,614,000

$
(297,000
)
$
2,803,000

$
(90,000
)State


1,318,000


(92,000
)

1,084,000


(116,000
)

913,000


(30,000
)Total

$
5,585,000

$
(390,000
)
$
4,698,000

$
(413,000
)
$
3,716,000

$
(120,000
)


F-20

---

The
provision for income taxes is different from that which would be obtained by applying the statutory Federal income tax rate to income before taxes. The items causing the difference
are as follows:

2001

2000

1999Tax expense at statutory rate

$
4,204,000

$
3,311,000

$
2,917,000State income tax


740,000


640,000


583,000Permanent differences


251,000


334,000


96,000$
5,195,000

$
4,285,000

$
3,596,000


Deferred
tax expense (benefits) result from temporary differences in the recognition of revenues and expenses for tax and financial reporting purposes. The sources of these differences
and their tax effect are as follows:

2001

2000

1999Book depreciation more than tax depreciation

$
(453,000
)
$
(413,000
)
$
(188,000
)Mortgage servicing income


318,000





Other temporary differences


(255,000
)




68,000$
(390,000
)
$
(413,000
)
$
(120,000
)


Note 9Concentration of Credit Risk

The Company sells its services to homeowners and buyers. The Company is affected by the cyclical nature of the residential real estate industry and the
availability of financing for the homebuyer.

Note 10Stockholders' Equity

The Company established a policy in 1993 pursuant to which one share of common stock is issued as a bonus under the Company's Company Stock Purchase Plan to each
employee, consultant, sales associate, or advisor who joins the Company, subject to a ninety-day waiting period. During 2001, 2000, and 1999, 572, 624 and 1,090 shares, respectively, were issued
pursuant to this policy. The total value of these shares amounted to $5,000 in 2001, $5,000 in 2000 and $8,000 in 1999 using as a value the closing sale price of the common stock on the American Stock
Exchange on the day immediately preceding the date of issuance.

In
1996, the Company approved a stock repurchase plan authorizing the Company to repurchase shares of its common stock in the open market or in private transactions. In May of 1998, the
Company authorized an increase in the amount of the Company's stock that may be repurchased under the repurchase plan to a total of $1.9 million. At December 31, 2000, 243,255 shares at a cost
of $1,399,000 million had been acquired under this plan, of which 7,207 shares at a cost of $50,000 were acquired in 2000, and 4,500 shares at a cost of $31,000 were acquired in 1999. During
the third quarter of 2001 the Company authorized a stock repurchase plan of 200,000 shares of Company stock. This plan superseded the Company's prior repurchase plan. During the third and fourth
quarters, the Company purchased 27,800 shares of stock at a cost of $223,000 under the new repurchase plan.

In
2001 and 2000, the Company issued notes receivable to the Company's principal stockholder and spouse and to executive officers totaling $95,000 and $17,000, respectively. The proceeds
from these

F-21

---

transactions were used to purchase shares of the Company's stock. The notes receivable are carried as a reduction of stockholders' equity.

The
Company has various stock option plans under which shares of common stock may be granted to key employees, consultants, sales associates, advisers, and directors of the Company.
Options granted under the plans are non-qualified or incentive stock options, and are granted at a price that is not less than the fair market value of the common stock at the date of grant. These
options have lives of five or ten years and vest over periods from zero to four years. Options available for future grant under these plans totaled 57,938 and 359,900 at December 31, 2001 and 2000,
respectively.

At
December 31, 1998 the Company had 500,000 warrants outstanding with exercise prices ranging from $6.00 to $9.00 per share. During 1999, 5,960 warrants were exercised at $6.00 per
share. The remaining 494,040 warrants expired unexercised.

Pursuant
to the requirements of Statement 123, the following are the pro forma net income and net income per share amounts for 2001, 2000, and 1999, as if the compensation cost for the
stock option and stock purchase plans had been determined based upon the fair value at the grant date for grants in 2001, 2000, and 1999:

|                           |  | Years Ended December 31,
|-------------------------- |  | ------------------------
|
|
|Net income                 |  | $                       
|Basic earnings per share   |  | $                       
|Diluted earnings per share |  | $                       

The
above pro forma estimates were made using the Black-Scholes option pricing model. The following assumptions were used to estimate the fair value of the options issued in 2001: risk
free interest rate of 4.94%, expected volatility of .294, expected dividend yield of 2% and an estimated life of the options of 5 and 10 years based on the grant. The following assumptions were used
to estimate the fair value of the options issued in 2000: risk free interest rate of 4.98%, expected volatility of .299, expected dividend yield of 2% and an estimated life of the options of 5 and 10
years based on the grant. The following assumptions were used to estimate the fair value of the options issued in 1999: risk free interest rate of 6.46%, expected volatility of .309, expected dividend
yield of 2% and an estimated life of the options of 5 and 10 years based on the grant.

The
values estimated related to options are based on management estimates in conjunction with the Black-Scholes valuation model and may not reflect the actual values of these options.

F-22

---

A
summary of stock option transactions is as follows:

|                                         |  | Years Ended December 31,
|---------------------------------------- |  | ------------------------
|
|
|Options outstanding at beginning of year |  | 1,606,775               
|Options granted (1)                      |  | 459,774                 
|Options granted (2)                      |  | 12,626                  
|Options granted (3)                      |  |                        
|Options exercised                        |  | (66,575                 
|Cancelled options                        |  | (31,338                 
|                                         |  |                         
|Options outstanding at end of year       |  | 1,981,262               
|                                         |  |                         
|Options exercisable at December 31,      |  | 1,098,951               

|                                                       |  | Price |            | Number |           | Price |   | Number    
|------------------------------------------------------ |  | ----- | ---------- | ------ | --------- | ----- | - | ----------
|Price and number of options outstanding at end of year |  | $     | 3.50-$5.00 |        | 80,000    |       | $ | 3.50-$5.00
|                                                       |  | $     | 5.01-$7.24 |        | 1,377,465 |       | $ | 5.01-$7.24
|                                                       |  | $     | 7.25-$9.00 |        | 523,797   |       | $ | 7.25-$9.00

---

The
weighted average remaining life of stock options outstanding at December 31, 2001 was approximately 7 years.

The
weighted average fair value of options granted during 2001 and 2000 for options where the exercise price equaled the market price on the grant date was $2.14 and $2.02, respectively.
The weighted average fair values of options granted during 2001 and 2000 where the exercise price exceeds the market price on the grant date were $1.74 and $1.77, respectively. There were no options
granted in 2001 or 2000 where the exercise price was less than the market price on the grant date. These fair values were estimated using the Black-Scholes valuation model and the assumptions noted
above.

The
Company has granted non-qualified stock options to non-employees as part of various stock option plans. The expense incurred by the Company related to non-employee stock option
grants totaled $294,000 and $9,000 for the years ended December 31, 2001 and 2000, respectively.

F-23

---

The
following table sets forth the computation of basic earnings per share and diluted earnings per share:

|                            |                                                                   | Years Ended December 31,
|--------------------------- | ----------------------------------------------------------------- | ------------------------
|
|Numerator:                  |                                                                   |                         
|                            | Income before cumulative effect of change in accounting principle |                         
|                            | Cumulative effect of change in accounting principle               |                         
|                            |                                                                   |                         
|                            | Net income                                                        |                         
|                            |                                                                   |                         
|Denominator:                |                                                                   |                         
|                            | Basic weighted average shares                                     |                         
|                            | Effect of stock options                                           |                         
|                            |                                                                   |                         
|                            | Diluted weighted average shares                                   |                         
|                            |                                                                   |                         
|Basic Earnings per share:   |                                                                   |                         
|                            | Income before cumulative effect of change in accounting principle |                         
|                            | Cumulative effect of change in accounting principle               |                         
|                            |                                                                   |                         
|                            | Net income                                                        |                         
|                            |                                                                   |                         
|Diluted Earnings per share: |                                                                   |                         
|                            | Income before cumulative effect of change in accounting principle |                         
|                            | Cumulative effect of change in accounting principle               |                         
|                            |                                                                   |                         
|                            | Net income                                                        |                         
|                            |                                                                   |                         

Note 11Originated Mortgage Servicing Rights

The following table represents activity and carrying amounts for originated mortgage servicing rights:

|                                                 |  | Years Ended December 31, |          
|------------------------------------------------ |  | ------------------------ | ---------
|
|Beginning Balance, January 1                     |  | $                        | 1,211,000
|Originated Mortgage Servicing Rights capitalized |  |                          | 1,017,000
|Amortization                                     |  |                          | (211,000 
|                                                 |  |                          |          
|Balance at December 31                           |  | $                        | 2,017,000
|                                                 |  |                          |          

F-24

---

The
following table represents activity and carrying amounts for the valuation allowance for originated mortgage servicing rights:

|                                 |  | Years Ended December 31,
|-------------------------------- |  | ------------------------
|
|Beginning Balance, January 1     |  | $                       
|Additions to Valuation Allowance |  |                         
|                                 |  |                         
|Balance at December 31           |  | $                       
|                                 |  |                         

The
estimated fair value of the servicing assets aggregated $1.9 million and $1.3 million at December 31, 2001 and 2000, respectively. Fair value is estimated by discounting estimated
future cash flows from the servicing assets using discount rates that approximate current market rates and using current expected future prepayment rates.

Note 12Segment Reporting

The Company has three reportable operating segments based upon its services: real estate, including both real estate brokerage and relocation services; mortgage
banking; and insurance services. The Company evaluates its segments based on pre-tax income. The accounting policies of the segments are the same as those described in the summary of significant
accounting policies. Financial information for the three operating segments is provided in the following table:

|                             |                    | Years Ended December 31, |            
|---------------------------- | ------------------ | ------------------------ | -----------
|
|Revenues:                    |                    |                          |            
|                             | Real Estate        |                          | $          
|                             | Mortgage Banking   |                          |            
|                             | Insurance Services |                          |            
|                             |                    |                          |            
|Total Segment Revenues       |                    | $                        | 214,499,000
|                             |                    |                          |            
|Net Revenues:                |                    |                          |            
|                             | Real Estate        |                          | $          
|                             | Mortgage Banking   |                          |            
|                             | Insurance Services |                          |            
|                             |                    |                          |            
|Total Segment Net Revenues   |                    | $                        | 79,775,000 
|                             |                    |                          |            
|Pre-tax Income (Loss):       |                    |                          |            
|                             | Real Estate        |                          | $          
|                             | Mortgage Banking   |                          |            
|                             | Insurance Services |                          |            
|                             |                    |                          |            
|Total Segment Pre-tax Income |                    | $                        | 11,811,000 
|                             |                    |                          |            
|Assets:                      |                    |                          |            
|                             | Real Estate        |                          | $          
|                             | Mortgage Banking   |                          |            
|                             | Insurance Services |                          |            
|                             |                    |                          |            
|Total Segment Assets         |                    | $                        | 117,278,000
|                             |                    |                          |            

F-25

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Note 13Selected Quarterly Data (Unaudited)

(In thousands except share and per share amounts)

|Calendar Year 2001                          |  | First
Quarter |           | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter |           | Year
|------------------------------------------- |  | ------------- | --------- | -------------- | - | ------------- |  | -------------- | --------- | ----
|Revenues                                    |  | $             | 30,042    |                | $ | 56,139        |  | $              | 71,573    |     
|Net Revenues                                |  |               | 12,004    |                |   | 21,124        |  |                | 24,993    |     
|Operating income (loss)                     |  |               | (4,039    | )              |   | 3,641         |  |                | 8,225     |     
|Net income (loss)                           |  |               | (2,256    | )              |   | 2,197         |  |                | 4,623     |     
|Basic Earnings per share                    |  |               | (0.66     | )              |   | 0.64          |  |                | 1.34      |     
|Diluted Earnings per share                  |  | $             | (0.66     | )              | $ | 0.60          |  | $              | 1.26      |     
|Basic Weighted Average shares outstanding   |  |               | 3,406,000 |                |   | 3,435,000     |  |                | 3,442,000 |     
|Diluted Weighted Average shares outstanding |  |               | 3,406,000 |                |   | 3,681,000     |  |                | 3,678,000 |     

|Calendar Year 2000                                                |  | First
Quarter |           | Second
Quarter |   | Third
Quarter |  | Fourth
Quarter |           | Year |  
|----------------------------------------------------------------- |  | ------------- | --------- | -------------- | - | ------------- |  | -------------- | --------- | ---- | -
|Revenues                                                          |  | $             | 28,566    |                | $ | 51,901        |  | $              | 60,639    |      | $
|Net Revenues                                                      |  |               | 11,226    |                |   | 19,107        |  |                | 22,096    |      |  
|Operating income (loss)                                           |  |               | (3,448    | )              |   | 3,665         |  |                | 5,972     |      |  
|Income before cumulative effect of change in accounting principle |  |               | (2,011    | )              |   | 1,975         |  |                | 3,387     |      |  
|Cumulative effect of change in accounting principle               |  |               | (3,715    | )              |   |              |  |                |          |      |  
|                                                                  |  |               |           |                |   |               |  |                |           |      |  
|Net income (loss)                                                 |  |               | (5,726    | )              |   | 1,975         |  |                | 3,387     |      |  
|Basic Earnings per share:                                         |  |               |           |                |   |               |  |                |           |      |  
|Income before cumulative effect of change in accounting principle |  |               | (0.60     | )              |   | 0.58          |  |                | 1.00      |      |  
|Cumulative effect of change in accounting principle               |  |               | (1.10     | )              |   |              |  |                |          |      |  
|                                                                  |  |               |           |                |   |               |  |                |           |      |  
|Net Income                                                        |  |               | (1.70     | )              |   | 0.58          |  |                | 1.00      |      |  
|Diluted Earnings per share:                                       |  |               |           |                |   |               |  |                |           |      |  
|Income before cumulative effect of change in accounting principle |  |               | (0.60     | )              |   | 0.55          |  |                | 0.93      |      |  
|Cumulative effect of change in accounting principle               |  |               | (1.10     | )              |   |              |  |                |          |      |  
|                                                                  |  |               |           |                |   |               |  |                |           |      |  
|Net Income                                                        |  | $             | (1.70     | )              | $ | 0.55          |  | $              | 0.93      |      | $
|Basic Weighted Average shares outstanding                         |  |               | 3,362,000 |                |   | 3,379,000     |  |                | 3,389,000 |      |  
|Diluted Weighted Average shares outstanding                       |  |               | 3,362,000 |                |   | 3,614,000     |  |                | 3,647,000 |      |  

F-26

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THE DEWOLFE COMPANIES, INC.  SCHEDULE II    VALUATION AND QUALIFYING ACCOUNTS

|Description                  |                               | Balance at
Beginning
of Year    |         | Charged to
Operations |         | Deductions |   | End of Year
Balance
|---------------------------- | ----------------------------- | ------------------------------- | ------- | --------------------- | ------- | ---------- | - | -------------------
|                             |                               |                                 |         |                       |         |            |   |                    
|Year ended December 31, 2000 |                               | $                               | 933,000 |                       |         |           |   | $                  
|Year ended December 31, 1999 |                               |                                 |         |                       |         |            |   |                    
|                             | Deducted from asset accounts: |                                 |         |                       |         |            |   |                    
|                             |                               | Allowance for doubtful accounts |         | $                     | 826,000 |            | $ | 440,000            

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F-27

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THE DEWOLFE COMPANIES, INC.  EXHIBIT INDEX  FORM 10K  12/31/01

|Exhibit No. |  | Description                                                                |  | Reference     
|----------- |  | -------------------------------------------------------------------------- |  | --------------
|3.1         |  | Restated Articles of Organization of the Registrant                        |  | A-3.1         
|3.2         |  | Amendment to Articles 3 and 4 of Restated Articles of Organization         |  | B-3(i)        
|3.3         |  | By-laws of the Registrant, as amended                                      |  | C-3(ii)       
|4.1         |  | Speciman Certificate of shares of Common Stock. $.01 par value             |  | C-4.1         
|10.1        |  | 1992 Stock Option Plan, as amended*                                        |  | F-10.4        
|10.2        |  | 1992 Non-Employee Director Stock Option Plan*                              |  | E-10.2        
|10.3        |  | Employment Agreement dated May 20, 1992 with Richard B. DeWolfe*           |  | A-10.16       
|10.4        |  | Stock Option Agreement dated May 20, 1992 with Richard B. DeWolfe*         |  | A-10.17       
|10.5        |  | Employment Agreement dated May 20, 1992 with Patricia A. Griffin*          |  | A-10.20       
|10.6        |  | Employment Agreement dated May 20, 1992 with Paul J. Harrington*           |  | A-10.21       
|10.7        |  | $10,507 Note dated June 1, 1990 from Amherst Realty Trust                  |  | A-10.24.1     
|10.8        |  | Mortgage dated June 23, 1991 from Richard B. DeWolfe and Marcia A. DeWolfe |  | A-10.24.2     
|10.9        |  | Employment Agreement dated April 29, 1996 with James A. Marcotte*          |  | D -10(i)      
|10.10       |  | Employment Agreement dated May 14, 1998 with Richard Pucci*                |  | F-10.3        
|10.11       |  | Employment Agreement dated February 20, 1998 with Richard Loughlin*        |  | G-10.20       
|10.12       |  | Employment Agreement dated July 6, 2000 with John R. Penrose*              |  | H-10.21       
|10.13       |  | 1998 Stock Option Plan, as amended*                                        |  | I-B           
|10.14       |  | Consulting Agreement dated January 1, 1999 with A. Clinton Allen           |  | J-10.15       
|10.15       |  | Employment Agreement dated November 26, 2001 with Charles A. Ferraro*      |  | filed herewith
|21          |  | Subsidiaries of the Registrant                                             |  | filed herewith
|23          |  | Consent of Ernst & Young LLP                                               |  | filed herewith
|99          |  | Copy of Section 67 of the Massachusetts Business Corporation Law           |  | A-28.1        

|A |  | Incorporated by reference from the registrant's Registration Statement on Form S-18 (File No. 33-48113-B). The page or reference set forth herein is the exhibit number in said Registration Statement.  
|- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B |  | Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1995. The page or reference set forth herein is the exhibit number in said quarterly report.
|C |  | Incorporated by reference from the registrant's Annual Report on Form 10-K for for the fiscal year ended December 31, 1995. The number set forth herein is the exhibit number in said report.            
|D |  | Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1996. The page or reference set forth herein is the exhibit number in said quarterly report.

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|E |  | Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The page or reference set forth herein is the exhibit number in said report.          
|- | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|F |  | Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period ending June 30, 1998. The page or reference set forth herein is the exhibit number in said quarterly Report.     
|G |  | Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The page or reference set forth herein is the exhibit number in said report.          
|H |  | Incorporated by reference from the registrant's Quarterly Report on Form 10-Q for the period Ending September 30, 2000. The page or reference set forth herein is the exhibit number in said quarterly Report.
|I |  | Incorporated by reference from the registrant's 2002 Proxy Statement. The reference set forth herein is the exhibit letter in said Proxy Statement.                                                           
|J |  | Incorporated by reference from the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. The page or reference set forth herein is the exhibit number in said report.          

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