Liquidation Value

[lahietpas]

I know this is kind of a generalized question. This is regarding a small industrial type building. I have been asked to provide the market value and the liquidation value for a building. According to the lender, the liquidation value is to be based on an accelerated marketing period of not more than 120 days. I was going to use some type of a percentage discount, from market value, to represent the liquidation value. I looked at available services I have at my disposal to see what the normal marketing time (days on market) is for the price range my property is within. Obviously, the 120 day accelerated marketing period is about 1/2 of the normal marketing time for this price range in my area. Any ideas if sources or tools to use to help define the percentage??? Thanks,

 

[Michigan CG]

Ask and Appraiser is for the general public to answer questions.

I have moved this to Commercial/Industrial.

--------------------------------------------------------------------

For those that do not have the definition of Liquidation Value, here it is.

Liquidation Value
The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
1. Consummation of a sale will occur within a severely limited future marketing period specified by the client.
2. The actual market conditions currently prevailing are those to which the appraised property interest is subject.
3. The buyer is acting prudently and knowledgeably.
4. The seller is under extreme compulsion to sell.
5. The buyer is typically motivated.
6. The buyer is acting in what he or she considers his or her best interest.
7. A limited marketing effort and time will be allowed for the completion of a sale.
8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
This definition can be modified to provide for valuation with specified financing terms. See also disposition value; distress sale; forced price; market value.

 

[lahietpas]

Thanks and sorry. This is my first thread.

 

[Mary Tiernan]

You inquire as to where to obtain the percentage fof discount for limited 120 day marketing period?

I think your only choice is via the market.

I recently did a liquidation value for residential property with a limited marketing time of 30 days and this is how I found liquidation value:

Let's say a recent sale was originally offered at $80,000 with a total marketing time of 120 days, sold for $55,000. How many price reductions were there? I find the last price reduction, it was reduced to $60,000 and sold within 20 days thereafter. I then looked at all the other sales to see if there is a trend. For this particular market, there was - once asking price reached the $60,000 threshold, the properties were selling within 30 days.

I interviewed realtors, studied the market, and provided an opinion of 30 day liquidation value based on the market - the subject property could sell within 30 days with a $60,000 asking price. I provided detailed reasoning as to why this is my opinion and included listing history of all the comparables.

 

[Kali the Boston Terrier]

Not a whole lot for industrial I have a feeling in your neck of the woods to extract...however a test of reasonableness I often use is I find the lowest active property. Essentially if we are using the Principle of Substitution than in order for the subject to sell in 120 days, it will have to be priced below the lowest price option...The problem with a "rule of thumb" percentage is that it does not really mimick the makrte. For instance say you apply a 14% discount, and arrive at a liquidation value of say $500k, however if you take the lowest price listing, and apply Sale to List Price ratio adjustment and arrive at $600k. What market indication do you have to suggest that someone who pay $500k, especially if the lowest price option wouldn't yield anything lower than $600k? Kind of mails the reasonableness test.

I find listings tend to really suggest a better liquidation value than sales...provided they are comparable of course.

 

[rbrienza]

I just completed a pre-foreclosure for a bank.... they wanted a liquidation value/ Quick Sale Value. This is what I did. I called Bankers and brokers asked what have they seen in the market and or used in the market over a 90 day period. Of the 35 people I called I got 22 that I actually talked to, 13 of which gave me good data.

My subject was an independent Gas/ Convenience Store

 

[BobfromSalem]

If you can find short slales for that property type-- that's great....But also I have thrown in an extra concession that may help to attract a potential buyer in a quick sale situation....Such as applying a significant tenant improvement allowance (based on a market survey for that property type, times the square footage of the building...then deduct that from your "As Is" value. In my opinion, that does the job for some property types (such as office or mixed-use properties).