In real estate appraisal, what is "liquidation value"?

Liquidation value refers to the estimated price at which a property would sell quickly, particularly in a distressed sale situation. This situation typically arises when a property must be sold urgently, often due to financial difficulties, foreclosure, or other time-sensitive circumstances. The liquidation value is generally lower than the market value because it accounts for the property's need to attract buyers quickly, often resulting in a sale at a discount. This concept is crucial for appraisers and investors to understand, as it reflects the urgency and potential price reductions involved in selling a property swiftly.

The other definitions do not align with the characteristics of liquidation value. The market value during normal conditions typically represents the highest price a buyer is willing to pay in a stable market, which does not factor in the urgency of a distressed sale. Future market trends are not included in the definition of liquidation value, as this value focuses on present conditions and the immediate need for sale. Finally, the value of a property sold to a developer may consider future development potential but is not specifically tied to a distressed sale scenario, making it distinct from liquidation value.