Forced sale value: Difference between revisions
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==Liquidation== | ==Liquidation== | ||
In the mortgage sector the '''forced sale value''' is also known as a '''forced liquidation value''' (FLV)<ref>Risius J.M., 2007, p.131</ref>. As a J.R. Hitchner wrote<ref>Hitchner J. R., 2003, p. 261</ref>: “'''forced liquidation value''' - the estimated gross amount, expressed in terms of money, that could be typically realized from a properly advertised and conducted public [[auction]], with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basiss, as of a specific date”. It is worth to emphasize, that assets are selling as soon as possible. In the case of '''forced sell''', a company does not have a time to wait for purchase offers, and choose best ones. There is an auction and assets are selling one by one<ref> Hitchner J. R., 2003, p. 261</ref>. | In the mortgage sector the '''forced sale value''' is also known as a '''forced [[liquidation value]]''' (FLV)<ref>Risius J.M., 2007, p.131</ref>. As a J.R. Hitchner wrote<ref>Hitchner J. R., 2003, p. 261</ref>: “'''forced liquidation value''' - the estimated gross amount, expressed in terms of money, that could be typically realized from a properly advertised and conducted public [[auction]], with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basiss, as of a specific date”. It is worth to emphasize, that assets are selling as soon as possible. In the case of '''forced sell''', a company does not have a time to wait for purchase offers, and choose best ones. There is an auction and assets are selling one by one<ref> Hitchner J. R., 2003, p. 261</ref>. | ||
==Why is it useful== | ==Why is it useful== | ||
Revision as of 05:36, 20 January 2023
| Forced sale value |
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| See also |
Forced sale value - generally, this term means that the owner (person, or company) of the assets is forced by an extreme situation to sell those assets hurry (e.g. to pay a debt). Prices of selling assets are usually smaller about 30% than normally on the market because of hurry up. The amount of money that the owner gained by forced sale of assets is called forced sale value[1].
Term: forced sale value is mostly used in the field of mortgage.
Liquidation
In the mortgage sector the forced sale value is also known as a forced liquidation value (FLV)[2]. As a J.R. Hitchner wrote[3]: “forced liquidation value - the estimated gross amount, expressed in terms of money, that could be typically realized from a properly advertised and conducted public auction, with the seller being compelled to sell with a sense of immediacy on an as-is, where-is basiss, as of a specific date”. It is worth to emphasize, that assets are selling as soon as possible. In the case of forced sell, a company does not have a time to wait for purchase offers, and choose best ones. There is an auction and assets are selling one by one[4].
Why is it useful
Forced liquidation value is useful specially for mortgage lenders. They calculate on the base of FLV if it is worth to give a mortgage for a particular company, and what maximum amount of money they want to lean. The FLV is a protection for lenders, in case of a company insolvency, because the amount of money they will lend is directly comparable to the forced liquidation value of the company. When the company is not able to pay of a loan, the lender has right to force the company to sell the assets and to pay of the mortgage [5].
How to calculate
To calculate the forced liquidation value it is necessary to business valuation expert judge every of company's assets. There are few things to remember[6]:
- The FLV can change in time, because the company can buy new, or replace some old assets
- To evaluate assets it is necessary to know if the value include any costs involved with selling the items
Footnotes
References
- Berry A., (1999)Financial Accounting: An Introduction International Thomson Business Press, United Kingdom
- Goode R., et al., (2012)Transnational Commercial Law: International Instruments and Commentary Oxford University Press, United Kingdom
- Hitchner J. R., (2003)Financial Valuation: Applications and Models John Wiley & Sons, Inc., USA
- Risius J.M., (2007)Business Valuation: A Primer for the Legal Profession American Bar Association, USA
- Thompson S.D., (1878)A Treatise on Homestead and Exemption Laws F. H. Thomas and Company, USA
- Tracy J. A., Tracy T. (2012) Cash Flow For Dummies John Wiley & Sons, Inc., USA
Author: Michał Skrabski
