How to determine resale value
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In the process of interaction between economic entities, it is often necessary to determine the liquidation value of an object. For example, if a loan is secured, the security of the loan will depend on the accuracy of the determination of the liquidation value. Upon liquidation of an enterprise, it becomes necessary to determine the liquidation value of its assets.
Instruction manual
1
Remember that resale value is the price at which an object can be sold on the open market with a reasonable implementation period for objects of this type. In other words, this is the value reflecting the most probable price at which the given object can be sold for the period of the object’s exposure, shorter than the typical exposure period for market conditions, despite the fact that the seller is forced to complete a transaction to sell the asset. Unlike market value, the calculation of liquidation value takes into account the influence of circumstances that force the seller to sell the property on conditions that do not correspond to market conditions.
2
Thus, when calculating the residual value, take into account three factors that will distinguish it from the market: - limited time for the sale of property; - limited resources for the sale of property; - forced sale of property.
3
The liquidation value is determined on the basis of the market price of the property taking into account the limited exposure period, i.e. the period from the beginning of the presentation of the object for sale until the transaction. It is a key point in determining resale value. After all, a long exposure period allows for a large-scale advertising program, which will attract a wide circle of investors, which means an opportunity to set a higher price. Conversely, when the exposure period is short, the circle of buyers is limited, therefore, they will have to offer property at a price that they cannot refuse, i.e. pretty low.
4
Note that in addition to the exposure period, the calculation method also affects the value of the residual value. A direct method is to compare the property being sold with a similar one. This method is quite simple and reliable. However, in modern conditions, it is not always feasible, because information about forced sales is not enough. There is also an indirect method for determining resale value. It is based on the calculation of liquidation value through market, i.e. From the market price, the amount of the discount on the forced nature of the sale is deducted. Usually it is 20-50% and is determined individually for each object.
