Market Value vs Liquidation Value

[Long Walk]

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.

Isn't LV in residential better measured by prices paid at foreclosure auctions? Even in a hot market, the discounts that I saw at auction were somewhere between 25% and 75%. Most sold at 50±% of MV, IME.

 

[J Grant]

Isn't LV in residential better measured by prices paid at foreclosure auctions? Even in a hot market, the discounts that I saw at auction were somewhere between 25% and 75%. Most sold at 50±% of MV, IME.

I know you asked GH, but imo yes LV can be better represented by foreclosure auctions or similar auctions such as tax lien - because LV is not just about a shortened DOM, it is also about a very limited marketing effort - and a foreclosure or other auction might only get an announcement in a legal section of a paper or a notice in a court listing of properties.

Disposition value is closer to a modified /limited marketing effort but still might use traditional advertising /ways of making the property known to potential buyers.

 

[glenn walker]

I know you asked GH, but imo A foreclpousre sale is a forced sale yes LV can be better represented by foreclosure auctions or similar auctions such as tax lien - because LV is not just about a shortened DOM, it is also about a very limited marketing effort - and a foreclosure or other auction might only get an announcement in a legal section of a paper or a notice in a court listing of properties.

Disposition value is closer to a modified /limited marketing effort but still might use traditional advertising /ways of making the property known to potential buyers.

A Foreclosure is a Forced Sale not the same

 

[J Grant]

A Foreclosure is a Forced Sale not the same

Believe me I well understand the difference ! Though idk what u mean by a "forced sale"- in an REO/foreclosure if it is on MLS and avail to a wide pool of buyers that is an open market exposure and the bank seller typically is not "forced" to sell in a very short time frame -

 

[Long Walk]

A Foreclosure is a Forced Sale not the same

What kind of liquidation value doesn't contemplate a forced sale?

 

[George Hatch]

As far as SFR properties go....
I think auction sales are but a small subset of LV transactions. Forced sales of SFRs are commonly marketed through open exposure on the MLS.

It doesn't take any more effort to list an REO under "must sell" conditions than any other listing. It doesn't take any less effort to sell a "forced sale" in a hot 10-day-exposure-time market than to sell any other home.

With that said, there are other property types which are sometimes marketed differently than SFRs - so that's where the more limited marketing efforts for LV would be more commonly found.

One more thing: the assumptions in the definition of MV apply to the subject's valuation. Not to the sales transactions of the other sales. We're looking for what's most probable in the market assuming our subject's seller defined motivations within the context of the prevailing market conditions.

If your MLS query returns 10 sales and 9 of them are REOs then the pricing they demonstrate WILL also be reflected in the 10th sale. Thus demonstrating that the buyers can and do consider other alternatives than just the non-REOs.

 

[glenn walker]

What kind of liquidation value doesn't contemplate a forced sale?

Many in the Commercial World downsizing , selling off assists no longer used or needed. BUT not all Liquidation sales are fire sales and most are not sold at a loss.

 

[J Grant]

Actually the LV definition does not say "forced sale", It says a seller under extreme compulsion to sell.

 

[glenn walker]

A short sale is a true liquidation sale as the Borrower rarely gets any money but is doing it at a loss to save his credit etc from a Foreclosure on his credit .

 

[glenn walker]

I think GH and terrill laid it out about as good as its gets but Each one is different and the definitions are not worth the paper they are written on, until the appraiser knows what is going on and the SOW. This entire thread is all speculative at best