An appraiser might encounter several different types of value when performing an appraisal assignment. The Uniform Standards of Professional Appraisal Practice (USPAP) provide standards within the appraisal profession, but does not have a definition of market value for personal property. Instead, appraisers have to apply the proper definition of value considering the needs of the client and the intended use of the assignment.
One of these types of values is Liquidation Value, of which there are two distinct types: Orderly Liquidation Value and Forced Liquidation Value. The difference in the amount of time to sell the property. Where the Forced value assumes a very short period of time, more common is the Orderly Liquidation Value where an appraiser considers the most probable price that a property would change hands between knowledgeable buyers and sellers in an orderly manner, with a reasonable amount of time which is broadly considered to be three to six months. This allows for things like proper advertising and marketing, providing the chance to present the property in an appropriate marketplace with knowledgeable sellers and buyers.
Imagine a collector that has a world class collection of these collectible figures that were very popular collectibles, especially in the 1980s and 1990s. These were introduced in 1978 and they are hand painted bisque porcelain figures depicting children with teardrop shaped eyes. New issues are produced, some are retired, and there are rarities that collectors covet and special collector editions. Often collectors specialize in these and there are guide books and enthusiastic collector forums.
An Orderly Liquidation Value would consider that there’s an international market for these, and would make sure that Precious Moments collectors would have time to discover the offering and research prices, aided with high-quality images from the seller and images of labels, marks and anything else that a specialist in the series might like. An example of a Forced Liquidation Value might be placing dozens together indiscriminately in a group lot at a local auction, or selling them quickly at a local garage sale.
Perhaps more realistic is a household that has a lot of nice furniture by well-known brands like Ralph Lauren. Consider the time needed to expose the goods in an appropriate marketplace: the buyer for this kind of stylish, high-end furniture may not shop at garage sales and would need to be attracted with advertising, marketing and other ways to reach affluent buyers. Perhaps the best marketplace would be a nice consignment shop, where things typically take several months to sell?
An Orderly Liquidation Value considers where the property will achieve strong prices, a crucial step in appraisals for estate liquidation to maximize returns on personal property, and the market value of property using an orderly liquidation market is most always going to be significantly greater than a forced liquidation.
Consider the Orderly Liquidation Value in the context of an art gallery that is closing in the next few months since the owner is retiring and can’t find a successor to run the business. There is likely significant inventory to sell within a limited time, but it’s not the very restricted time frame of a forced liquidation. The owner could explore continuing the retail sales to collectors, planning for auction of remaining inventory at various specialist auction houses to retail collectors, and then wholesaling the remaining inventory to the gallery’s one-time competitors who are still in business.
Here, the retiring gallerist could do an orderly liquidation considering the retail and wholesale markets, surely preferring to have as many retail sales as possible since retail sales are typically higher than wholesale pricing.
Orderly Liquidation Value is often used in family division of property, especially when family members aren’t keeping the items because it helps in the division by providing values closer to what might actually be realized when items are sold.
There is another concept of Orderly Liquidation Value in Place which is used for commercial property and is the price that a knowledgeable buyer would have to pay a knowledgeable seller for an asset in “as is” condition. It assumes that the specially built asset will be used in the manner in which it was originally intended. It refers to a structured and planned process for selling a company's assets or winding down a failing company's operations over a reasonable period of time to maximize the value recovered for creditors and shareholders.
As discussed, the key component in distinguishing Ordinary from Forced liquidation value is the timeline for the possible sale. Orderly liquidation assumes that a sale would take place within approximately three to six months and provides for adequate time to market property to collectors who can pay retail value.
Ordinary Liquidation provides prices that are close to fair market value, as they assume that the items are sold in the most common market. For a high-end Impressionist and Modern painting, for example, it assumes that one would be able to consign the work to a gallery that regularly deals in that sort of work or place it in a major sale at an international auction house like Christie’s and Sotheby’s that attracts buyers who regularly purchase similar works.
