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Market Value vs Liquidation Value

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glenn walker said:
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.
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Lol if you as a broker have time to market it for a highest possible price it is probably not a liquidation sale - just saying!
A liquidation sale would be an owner telling a broker they have 2 days to sell or a court order takes the property - as an example. Which would make it a cash deal, which I bet many LV fast sales are.
Auction sales show up with cash or put down a binder and pay the balance in cash in 24 hours - no financing or appraisal contingency and perhaps no permission to inspect -which is why those prices are often discounted. The people who show up to buy are usually investors not a typical owner occupant buyer - some buy sight unseen from another state-
 
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Example :132 Cherry St a 2000 sf house.

LV- owner of 132 Cherry St tells agent they have 2 days to sell or a judgement takes the property - get whatever price they can - with such short notice the marketing effort likely limited., and circumstances might mean a cash sale only.

DV -owner of 132 Cherry St tells agent they really need it sold within 30 days or the owner has to start paying steep penalties - please list and try to get best price within 30 days. The property is exposed to open market but with more motivation on seller side to sell within X time frame.

MV - owner of 132 Cherry St tells agent please list it , do the max marketing on it and try to get the best price possible. It will have a robust marketing effort and a reasonable market exposure.

The price for a transaction for any of the three above value definitions might be the same $ or a different $ number from each other. But regardless of price, the terms of sale and motivations were true to the value definition in each case.
 
I used to sell HUD homes for the HUD properties foreclosed on in Miami Dade County after I first moved to FL before becoming an appraiser, and each sale was a blind auction bid - so I have a little bg in this type of sale - buyers would put in a sealed bid and then the agency had X days to open them and pick the highest bid. Sometimes we got the house for the buyer, other times not. It became an art form to try to figure out what bid was high enough to win but not a crazy over pay. Some buyers would bid multiple times to finally end up with a house. I did it with a male partner ( he was great) because some of the neighborhoods were a little rough - buyers nice working people trying to get a break -HUD did not want the SFR in decent condition going to investors - they had another category of properties they took investor bids on or if a house got no owner occupant bids within X days it would open up to investors. HUD paid a commission to RE agents who helped buyers prepare bids.( back then I have no idea if the program even exists now - moved from Miami Dade and went into appraising- but looking back learned a lot from it -diff condition properties and areas -
 
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Carnivore said:
The term liquidation value is defined in The Dictionary of Real Estate Appraisal, Fifth Edition as follows: 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.

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Yes. It helps to always cite #4 and # 7 along with 1)
1) consummation of a sale within a short time period 4) seller has an extreme compulsion to sell 7) normal marketing effort not possible due to short time period

Just citing a consummation of a sale within a short time period gives a misleading impression LV is only about a short (marketing ) time period -Glen did the same thing -idkw
 
Disposition Value : 1. Consummation of a sale within a short time period.

Note that Market value cites what probable price a property should bring and does not specify consummation of sale within X period -DV cites consummation within a shorter than typical period and LV cites consummation of sale within a short period.

It is an important distinction because Consummation means the title passes /closes within X short time - so it is not simply a shorter DOM exposure. The standard for a short closing consummation means often an LV sale is all cash with financing or in some cases no inspection contingency. The DOM was 2 days, the must close by date 10 days.

Compare that to a MV sale where DOM was 2 days but then a typical/reasonable time to close, most deals allow inspections and financing/appraisal contingencies
 
J Grant said:
Yes. It helps to always cite #4 and # 7 along with 1)
1) consummation of a sale within a short time period 4) seller has an extreme compulsion to sell 7) normal marketing effort not possible due to short time period

Just citing a consummation of a sale within a short time period gives a misleading impression LV is only about a short (marketing ) time period -Glen did the same thing -idkw
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I did not single out any from the List. The Short Marketing time period is really important. Imagine you received an assignment like this within the last 24 months. Houses were being sold in one to two days in an increasing market. Now its taking in my area 28-32 days on average over a wide range of homes that are still increasing in value, albeit at a much lower rate.

Short Sale are a good example.
 
Carnivore said:
I did not single out any from the List. The Short Marketing time period is really important. Imagine you received an assignment like this within the last 24 months. Houses were being sold in one to two days in an increasing market. Now its taking in my area 28-32 days on average over a wide range of homes that are still increasing in value, albeit at a much lower rate.

Short Sale are a good example.
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Yes the short marketing time is important, but notice the distinction -the LV definition you pasted cited CONSUMATION of sale within a short period - is a diff threshold then just a short marketing period. Consummation of sale means the title passes and the sale closes within a short time period to be an LV sale

VS market value where the property can have a short marketing time period, BUT has NO set expectation for consummation within any period of time in the MV definition and THAT is what distinguishes LV sales from DV sales in a market where MV sales also can have a short marketing time. ( see my post 57)

Sorry but imo short sales are not a good example of LV -
 
Carnivore said:
I did not single out any from the List. The Short Marketing time period is really important. Imagine you received an assignment like this within the last 24 months. Houses were being sold in one to two days in an increasing market. Now its taking in my area 28-32 days on average over a wide range of homes that are still increasing in value, albeit at a much lower rate.
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To address the above

The short marketing time of 2 days is shared by both an LV sale and a MV sale. The difference is the LV sale ALSO expects a closing/consummation within a short time frame - such as 10 days - whereas the MV sale does not specify a short consummation to close and typically has a reasonable time to close per whatever the parties negotiae-30-45 or 60 days typical -

The short Consummation means many LV sales are cash only, and the contracts have no financing contingency and might have no inspection contingency either - which also separates them from MV sales which typically will allow financing and a buyer to have an inspection done.

In practice some LV sales might not have any interior access and bidders take the risk - which can impact prices.
 
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