Market Value vs Liquidation Value

[J Grant]

I place very little weight on Definitions, until I speak with a Client about what their goals are. Until you know all the particulars, its all just a lot of chit chat. On Commercial I ask how fast do you need to sell it as in some cases there are no buyers at almost any price and you need lots of time and exposure. Not intentionally but none of this posts would help a New Trainee its just not that simple.

Regardless of your personal ideas about things, an appraisal hinges on the value definition stated and disclosed in the appraisal (LV or DV or MV or other).

A client's goals for a subject can be an assignment condition, and it might or might not impact what the value definition should be. Once the appraiser determines the value definition used or the assignment comes over with a value definition (purpose: opinion of market value ). the Value defininon states the HC appraisal transaction terms for the value opinion as a most probable price

 

[glenn walker]

Regardless of your personal ideas about things, an appraisal hinges on the value definition stated and disclosed in the appraisal (LV or DV or MV or other).

A client's goals for a subject can be an assignment condition, and it might or might not impact what the value definition should be. Once the appraiser determines the value definition used or the assignment comes over with a value definition (purpose: opinion of market value ). the Value defininon states the HC appraisal transaction terms for the value opinion as a most probable price

The definition is just a Guideline and the Appraiser has to develop a scope of work to find out which definition is going to be used that best represents whats really going on.

 

[Terrel L. Shields]

WRONG, dead wrong.

Really? When have you been asked to NOT frame LV in terms of a 30 day liquidation? Why not a 90 day liquidation? If you have 90 days, then advertise the property for 30 days and auction it with a caveat you must close on the deal within 10-30 days. Under what circumstance are you going to offer a LV with the time limit of 30 days and then use sales that were exposed for 50-100 days?

There is only one circumstance where a seller is "under stress" and that is when there is a time limit. Either they MUST sell or forfeit the property or a court or bank has ordered the same by a set date - again as a prelude to take over the property. But if you have 90 days, it has taken a huge amount of the pressure off.

 

[glenn walker]

Another misconception can be the difference between a Distress Sale and a Liquidation Sale.

 

[George Hatch]

It's the arbitrary exposure time and the seller's "must sell" that demarks LV from MV.

IRL, the LV for an SFR is almost always equal in amount to the MV when the market is running hot and exposure times are commonly under 10 days. Or even 30 days. It's when the markets are running colder and only the most motivated sellers are selling that we see big differences between LV vs MVs.

For example, if a market segment is demonstrating 4mo exposure times then it's going to take some significant discounting to attain a "must sell within the next 24 hours" or the next week or the next month or within 90 days.

 

[George Hatch]

And yes, the definitions count because that's how we avoid the revisionism that sometimes occurs after the fact. "THIS is the question you asked and which I answered. Not THAT." You can't meet a user's expectation without first identifying it and referring back to it in your work.

At least 75% of the appraisal controversies that we argue on this forum stem from the creative (and inaccurate) interpretations of the terms that are being used. Reframing a comment from fuzzy-speak into appraiser-speak almost always demonstrates the stupidity of the reasoning of the former. That's why the long gunfights we engage in usually end up with the loser going after the definitions that are being used by criticizing their legitimacy and efficacy. By the time the discussion gets to that point, arguing the legitimacy of the semantics is all they've got left. That's how you can tell who lost the argument.

 

[Terrel L. Shields]

Distress Sale and a Liquidation Sale.

I believe we call that an "orderly" liquidation vs a Forced liquidation. Kind of a basis for valuing the total business assets of a hotel as an example - the old Rushmore vs Lennhoff methods.

 

[George Hatch]

I'll say something else about value definitions - on the conceptual basis the value definition only really needs to make sense to the appraiser and the user. There's nothing that says an appraiser can't use a user-defined value definition in their appraisal.

I would go so far as to suggest that if a user is imposing arbitrary limitations on what they will and won't accept as value indicators for a given value definition then those limitations can also be considered to be part of a user-driven value definition.

For example, let's say I'm appraising a home with an unpermitted addition which has been open and notorious onsite for many years because the local jurisdiction has been turning a blind eye to it and can be reasonably expected to do so for the foreseeable future. If I can demonstrate that the MARKET PARTICIPANTS value and use this addition as usable living area - even with the understanding that someday they could be required to get permits or demo the addition - then that indicates to the most probable price to those market participants.

OTOH if a lender is telling me to ignore that addition in an appraisal for their usage then doing so indicates to the value of that property to that lender, even when that value is different than its value to the market participants. I'm SAYING it's the Market Value, but I'm actually DOING Mortgage Value to that lender due to the additional limitations (must be permitted, not just permissible) they have added to the definition of MV.

 

[glenn walker]

But, But , But --The Book and Pre-Printed form controls the SOW LMAO

 

[J Grant]

For example, let's say I'm appraising a home with an unpermitted addition which has been open and notorious onsite for many years because the local jurisdiction has been turning a blind eye to it and can be reasonably expected to do so for the foreseeable future. If I can demonstrate that the MARKET PARTICIPANTS value and use this addition as usable living area - even with the understanding that someday they could be required to get permits or demo the addition - then that indicates to the most probable price to those market participants.

OTOH if a lender is telling me to ignore that addition in an appraisal for their usage then doing so indicates to the value of that property to that lender, even when that value is different than its value to the market participants. I'm SAYING it's the Market Value, but I'm actually DOING Mortgage Value to that lender due to the additional limitations (must be permitted, not just permissible) they have added to the definition of MV.

Agree. A client imposed stipulation is either acceptable or not as an assignment condition. If we accept a client stipulation, such as ignore the data that shows buyers pay more for an "illegal"/not permitted addition, then we have to disclose the MV definition as modified for that. We know that for URAR appraisals we are not allowed to modify or change the value definition.

That is what bugs me - appraisers sign they are opining market value or other type of value stated - wink wink they are "really" giving a client what they "need" - an REO Value (wtf is that?) Or a transaction value ( appraising to the SC price) .

People who say a value definition is nothing more than verbiage are wrong. The value definition sets the terms that frame the entire appraisal. It is what differentiates an appraisal from an AVM' or RE agent CMA- a RE agent uses a generic idea of MV being whatever a buyer is willing to pay and a seller is willing to accept. They do not have meet the standard of a specific value definition and its terms.