Market Value vs Liquidation Value

[J Grant]

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 .

A short sale may not be an LV sale in terms or price.
Again, it is about marketing effort and exposure, and when a short sale is listed on the MLS and gets ample market exposure its price can fall within a competitive range of other similar sales ( or not )

A short sale is really the arrangement between the homeowner who is in arrears and the bank holding the mortgage, where the bank might agree to go "short"- that is sell the house for less than the outstanding loan balance if the loan turns out to be underwater with borrower owing more on the mortgage then they can get for the house. Sometimes the bank or second lien goes after the owner for the difference on a time payment plan, other times they write it off.

But the sale of the property once it is listed and competes with other properties on the open market , noted on MLS as a short sale - the marketing effort can be similar to others and the price can vary

 

[J Grant]

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

Well you ignored what GH said because he said the value definitions are very important, which counters your view they are not worth the paper they are written on.

The appraiser develops the SOW to fulfill the MV definition used, not the other way around.

 

[Long Walk]

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.

How is that liquidation value? Brokers will be involved. Normal marketing time and exposure. No duress. Leasing or sub-leasing is an option instead of selling when down-sizing. Unless you say the sale is forced by the lender refusing to modify or extend the note. That could be liquidation, but last-minute re-finance at unfavorable terms is still different than liquidation value.

Liquidation on the street is just that. Everything must go. We're closing our doors. We're no longer a going concern. Not an orderly wind-up of our affairs. Instead, we have to clear the books in 30 days or less. Court-ordered. Impending foreclosure. Some kind of calamity has forced a liquidation sale.

And I agree with you that forced sales can certainly be at, below, or above market value depending on the terms of sale, existing market conditions, and the sophistication of the buyer.

 

[J Grant]

Appraisers also can confuse price with the terms of sale.

The different value definitions lay out the SET OF TERMS of the hypothetical transaction - the motivation of a seller, the expected market exposure, the marketing effort. It actually does not cite, in any of the definitions, a lower or higher price expectation.

An LV sale and a MV sale can each theoretically , or in the actual market, produce a matching price on a same property- BUT- the terms of sale were still different for each sale type. The fact that the terms of sale were different often leads to a difference in prices in many cases.

Though the value definition addresses the subject, We should try to choose comps whose terms of sale align with the value definition used.

 

[glenn walker]

Well you ignored what GH said because he said the value definitions are very important, which id not your view they are not worth the paper they are written on.

The appraiser develops the SOW about the MV definition used, not the other way around.

How is that liquidation value? Brokers will be involved. Normal marketing time and exposure. No duress. Leasing or sub-leasing is an option instead of selling when down-sizing. Unless you say the sale is forced by the lender refusing to modify or extend the note. That could be liquidation, but last-minute re-finance at unfavorable terms is still different than liquidation value.

Liquidation on the street is just that. Everything must go. We're closing our doors. We're no longer a going concern. Not an orderly wind-up of our affairs. Instead, we have to clear the books in 30 days or less. Court-ordered. Impending foreclosure. Some kind of calamity has forced a liquidation sale.

And I agree with you that forced sales can certainly be at, below, or above market value depending on the terms of sale, existing market conditions, and the sophistication of the buyer.

Appraisers also can confuse price with the terms of sale.

The different value definitions lay out the SET OF TERMS of the hypothetical transaction - the motivation of a seller, the expected market exposure, the marketing effort. It actually does not cite, in any of the definitions, a lower or higher price expectation.

An LV sale and a MV sale can each theoretically , or in the actual market, produce a matching price on a same property- BUT- the terms of sale were still different for each sale type. The fact that the terms of sale were different often leads to a difference in prices in many cases.

Though the value definition addresses the subject, We should try to choose comps whose terms of sale align with the value definition used.

I just knew this was going to come full circle to Price with terms of sale LMAO

 

[J Grant]

Prices are facts, and are numerical dollar amounts.
The concept of value is a human perspective about a price or prices. Different value definitions will each present a set of specific terms for a perspective about the price that resulted at those terms.

 

[glenn walker]

A LV is the most probable price that a specified interest in real estate property is likely to bring under all of the following conditions: 1. Consummation of a sale within a short time period.

 

[J Grant]

A LV is the most probable price that a specified interest in real estate property is likely to bring under all of the following conditions: 1. Consummation of a sale within a short time period.

What happened to the other terms after 1)? lol

 

[glenn walker]

What happened to the other terms after 1)? lol

The fact is its impossible to place a Value on a Liquidation Sale until the Broker gets it sold. It's a definition that needs to be revisited at least on a single point of value. As a Broker I think in terms of how much time do I have to market it and sell it for the highest possible price I can get for my Fiduciary. I really cannot think of one instance were an appraisal would have been helpful to either the Client or us except maybe for Book Keeping to place in their files.

 

[J Grant]

I just knew this was going to come full circle to Price with terms of sale LMAO

Price within the terms of sale IS the appraisal. Without a value definition to set the terms of sale for the HC value model there is no appraisal. You'd have something else then -an AVM or alt valuation product/broker estimate. Their estimates do not have to meet a value definition standard - our opinions do.