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Liquidation value

Liquidation value is the likely price of an asset when it is allowed insufficient time to sell on theopen market, thereby reducing its exposure to potential buyers. Liquidation value is typically

lower than fair market value. Unlike cash or securities, certain illiquid 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. 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 follows!"

The most probable price that a specified interest in real property is likely to bring under all of the

following conditions#

• $onsummation 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 sub%ect.

• 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.

• & limited marketing effort and time will be allowed for the completion of a sale.

• 'ayment will be made in cash in U.(. 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.

 )ote that this definition differs from the most commonly used definitions of market value or fairmarket value.

[edit] References

!. ^ Dictionary of Real Estate Appraisal, *th ed., &ppraisal +nstitute, --

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. goingconcern value

/. The value of a business in operation,taking into account the goodwill and the value of theincome, in addition to hard assets, such as real estate and equipment. 0hen appraising a

 pro%ect to develop incomeproducing property,the appraiser will usually provide two

numbers1one for the pro%ect on the day of completion,with no tenants,and one when itreaches stabili2ed occupancy and is a going concern.Lenders who take mortgages on

incomeproducing property with intensive management aspects1such as hospitality

 properties1usually obtain a goingconcern rider for the title insurance so that coveragewill be increased above the value of the real property.

3oing$oncern 4alue

The value of a company as long as it remains in business. 5ne calculates the goingconcern

value by adding the value of its goodwill and income to its net asset value. This is an importantcalculation when determining the appropriate purchase  price in a merger  or acquisition.

6ortgage lenders also use it to determine the value of an incomeproducing  property.

3oingconcern value

The value of a company to another company or individual in terms of an operating business. Thedifference between a company7s goingconcern value and its asset or liquidation value is deemed

goodwill and plays a ma%or role in mergers and acquisitions.