Liquidation value



Liquidation value is the likely price of an asset when it is allowed insufficient time to sell on the open market, thereby reducing its exposure to potential buyers. Liquidation value is typically lower than
fair market value The fair market value of property is the price at which it would change hands between a willing and informed buyer and seller. The term is used throughout the Internal Revenue Code, as well as in bankruptcy laws, in many state laws, and by several ...
. Unlike
cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immed ...
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
, certain
illiquid In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity involves the trade-off between the ...
assets, like real estate, often require a period of several months in order to obtain their fair market value in a sale, and will generally sell for a significantly lower price if a sale is forced to occur in a shorter time period. The liquidation value may be either the result of a ''forced liquidation'' or an ''orderly liquidation''. Either value assumes that the sale is consummated by a seller who is compelled to sell and assumes an exposure period which is less than market normal. The most common definition used by real estate appraisers is as followsDictionary of Real Estate Appraisal, 4th ed., Appraisal Institute, 2002 The most probable price that a specified interest in real property is likely to bring under all of the following conditions: * Consummation of a sale will occur within a severely limited future marketing period specified by the client. * The actual market conditions currently prevailing are those to which the appraised property interest is subject. * The buyer is acting prudently and knowledgeably. * The seller is under extreme compulsion to sell. * The buyer is typically motivated. * The buyer is acting in what he or she considers his or her best interest. * A limited
marketing Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to empha ...
effort and time will be allowed for the completion of a sale. * Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. * The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Note that this definition differs from the most commonly used definitions of market value or fair market value.


Real estate valuation Valuation (finance) Corporate liquidations