Most people understand that when we talk about ‘Market Value’, it involves the notion of a willing buyer and willing seller. However, what happens if the seller is under duress and needs to sell quickly? Or the property has been repossessed and sold by the bank?
It is reasonable to expect that where an element of duress exists on the seller’s behalf, the full ‘market value’ may not be achieved. This could be for a number of reasons.
For example, if a property is sold ‘as is’ with no guarantees that services (ie. plumbing, electrical etc) will be in working order, and there is no one to pursue afterwards if something substantial goes wrong, this increases the risk profile of the asset and it would therefore be less appealing to the market.
Furthermore, it is common for homes to be prepared for sale by undertaking a range of cosmetic repairs and upgrades to ensure it looks it’s best for the discerning punters, whereas this is often unable to be done to the same standard if sold under duress.
It can be a common misconception that banks will dispose of assets at a greatly reduced price in order to recover their funds quickly and get out; however, they are required to obtain the best possible amount for a property and most will require the sale price to be in line with an independent valuation.
It is certainly not an exact science when it comes to assessing the impact that forced sale conditions can have on the likely selling price and it can also vary depending on the strength of the market at the time. If a market is strong, there is likely to be less alternative and buyers will be more inclined to pay full value so they don’t miss out. On the flip side, if the market is weak and there is plenty of choice, the impact can be significant.
Hemsley Paterson have undertaken analysis of numerous properties which have been sold under mortgagee in possession conditions, which shows that in some extreme cases there has been up to a 25% discount on our opinion of market value. However, to balance this out, there were also some instances where the was no perceivable discount realised. So the short answer to this one is that there really is no ‘one size fits all’ answer.