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What is Forced Liquidation Value?

July 14, 2010

In last week’s post, What is Orderly Liquidation Value?, we discussed just that. An orderly liquidation value is based on the idea that a company can afford to sell off its assets to the highest bidder.

However, the circumstances are different in the case of forced liquidation value, as the name implies. Forced liquidation value, also known as auction value, assumes that a business owner – the seller – is being forced to sell his machinery, equipment, and other assets. It assumes that the circumstances are somewhat dire for the business. Forced liquidation value implies a reduced sales value because buyers are taking advantage of the fact that a seller is being compelled to sell. The forced liquidation value of a company’s assets will always be lower than the fair market value, which we’ll discuss in an upcoming post.

A certified appraiser determines an asset’s forced liquidation value by determining the fair market value and then judging the price for which the goods will most likely sell if there is not enough time to collect an adequate number of bids in an auction.

By: NEBB Institute

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