Market Value vs Liquidation Value

[J Grant]

Market Value: “The most probable price, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specific property right should sell after reasonable exposure in a competitive market, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeable, and for self-interest, and assuming that neither is under undue duress.”

Disposition Value: “The most probable price that a specific interest in a property should bring under the following conditions.”

1. Consummation of a sale within a specified period of time, which is shorter than the typical exposure time for such a property in that market

Liquidation Value: “The most probable price that a specific interest in property should bring under the following conditions.”

1. Consummation of a sale within a short time period.

MV does not address consummation, it only addresses the most probable price a property should bring after reasonable exposure in a competitive market.

DV and LV both cite CONSUMATION to happen within a specified time period. Consummation means title passes and the sale closes. Therefore, in LV the consummation from offer accepted to close might be 10 days - an accelerated closing time frame which can means all cash offers, no inspections and other factors that affect the price and who the typical buyer is

 

[TerryRohrer]

Market Value: “The most probable price, as of a specific date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specific property right should sell after reasonable exposure in a competitive market, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeable, and for self-interest, and assuming that neither is under undue duress.”

Disposition Value: “The most probable price that a specific interest in a property should bring under the following conditions.”

1. Consummation of a sale within a specified period of time, which is shorter than the typical exposure time for such a property in that market

Liquidation Value: “The most probable price that a specific interest in property should bring under the following conditions.”

1. Consummation of a sale within a short time period.

MV does not address consummation, it only addresses the most probable price a property should bring after reasonable exposure in a competitive market.

DV and LV both cite CONSUMATION to happen within a specified time period. Consummation means title passes and the sale closes. Therefore, in LV the consummation from offer accepted to close might be 10 days - an accelerated closing time frame which can means all cash offers, no inspections and other factors that affect the price and who the typical buyer is

The following assumes consummation of a sale:

The most probable price...for which the specific property right should sell...

 

[J Grant]

The following assumes consummation of a sale:

The most probable price...for which the specific property right should sell...

While it assumes consummation of a sale , the MV definition does not impose a shortened time frame for the consummation - as both LV and DV do.

 

[sputnam]

No formula. It's a market question with a market derived answer. I did a study once... probably 15 years ago... regarding the impact on sales price of distress sales. The pool of available data was small so 'distress' from all causes was included. I found a range of 5% to 20% lower sales prices in distressed sales. Called it 10%-15% and no one was able to say my adjustment wasn't credible. Of course, you will need to do your own study for your market and your time... or... find and cite someone else's study.

 

[glenn walker]

While it assumes consummation of a sale , the MV definition does not impose a shortened time frame for the consummation - as both LV and DV do.

Why not just call the damn thing a Pre- Sale Listing Appraisal, and treat it like a Relocation Appraisal with a range of times on market to accomplish goal.

 

[J Grant]

Why not just call the damn thing a Pre- Sale Listing Appraisal, and treat it like a Relocation Appraisal with a range of times on market to accomplish goal.

If that is what a client specifies ok by me!
But that would be a specific pre list assignment order and LV assignment is not always about a listing - if a client orders LV purpose appraisal either decline or accept our choice so far I've never had one, just an interesting topic and highlights the differences between value definitions.

 

[TerryRohrer]

Why not just call the damn thing a Pre- Sale Listing Appraisal, and treat it like a Relocation Appraisal with a range of times on market to accomplish goal.

I think these ideas come from people who want something but don't have the faintest idea about how it might be estimated, or that it cannot be estimated reliably. The "seller is under extreme compulsion to sell" is never defined, so there are 75,000 definitions in use in the field (if just restricted to licensed appraisers). Then, there can be no reliable distinction between the impact of the various forces that might be compelling the seller to sell. For example, in foreclosure sales, the lender is involved. They might have a 25-year-old mortgage with a $50,000 balance, and their position will be different than if they had a year-old, $350,000 mortgage on the same property. Similarly, in a short sale, the lender has a say, and is likely more the decision maker than the "seller." Again, their demands will likely be different given different mortgage balances. A court-ordered sale is likely a one-off every time, with each court imposing its own demands, without any consistency between courts for similar circumstances.

I'm with Glenn on these. The task should be limited to estimating market value and let the user make their own guess based on their own needs and circumstances.

 

[glenn walker]

Not all Liquidation Sales are desperate sales. Again this is why I have to talk to the person to see what the end goal is. Example; I have a Warehouse my father filled with stuff for over 35 years. I can't sell or exchange it until I get it cleaned out. I hung a Big Banner on the Front and Sides and its says Liquidation Sale everything must go. Each Weds I open it up and from 9 AM to 4 PM we let people walk through and make offers. I'm now on year two and two thirds done BUT my intention was never to give things away but I am liquidating almost everything in there except my Classic Cars and Motorcycles. My point is Liquidation is not always a Fire sale where everything must go even at a loss. SEARS was in a 15 year liquidation Sale before it closed its final stores.

 

[Tom D]

the original question was for a single family. if everything listed was sold in less than 10 days with 5 bids going10% over the list price, then how do you figure a liquidation price? probable would have been the listing price. i had realtors under list a property to get it sold fast. and what happened, it sold way over list price. so a liquidation price, not talking about this now new market, was not easily determined cause everything was being sold at a crazy new higher price. in past normal times you could pick a liquidation price when everything was taking 60-90 days. so dom does have a significant affect on determining what definition they think they need used. every pre foreclosure i did in the last 4 years i could not give them a fast sale price based on a 90 day marketing time. forms don't change as fast as the market does.

 

[glenn walker]

Good Points-Up until

the original question was for a single family. if everything listed was sold in less than 10 days with 5 bids going10% over the list price, then how do you figure a liquidation price? probable would have been the listing price. i had realtors under list a property to get it sold fast. and what happened, it sold way over list price. so a liquidation price, not talking about this now new market, was not easily determined cause everything was being sold at a crazy new higher price. in past normal times you could pick a liquidation price when everything was taking 60-90 days. so dom does have a significant affect on determining what definition they think they need used. every pre foreclosure i did in the last 4 years i could not give them a fast sale price based on a 90 day marketing time. forms don't change as fast as the market does.

Good Points until recently Homes at Trustee sales in CALI were selling for as much as retail. We have attended Trustee sales for over 30 years and we first saw this start happening on 2017-We were stunned as prior 30 year we never considered a purchase unless a 25% to 40% discount was involved. We had also never seen banks make profits on Trustee sales. Weird Times for sure ")