Reprinted with permission

1.1 Purpose
The purpose of this guidance note is to address the issue of providing a ‘forced sale value’ of property and its relation to the assessment of Market Value for mortgage purposes.

1.4 Market Value Policy [Def. Market Value]
It is the policy of this Institute that mortgage valuations must be provided by Members on a Market Value basis. A professional market valuation of a property will be consistent with the Market Value definition adopted by the Institute.

2.0 Forced Sale
2.1 Forced Sale Value inconsistent with Market Value
The expressions ‘forced sale value’ and ‘distress sale value’ are considered to be inconsistent with the concept of ‘Market Value’ and represent expressions of property prices achieved under different selling conditions.

2.2 May be Provided
Valuers may, when requested, provide an estimate of a realisable price when forced or distress sale circumstances exist. The reporting of a range of value can be appropriate in these circumstances.

2.3 Distress Sale
Forced sale’ and ‘distress sale’ are taken to have a similar meaning for the purposes of this statement. The term ‘fire sale’ has even less certainty of meaning than these terms and in relation to property its use should be avoided.

2.4 Essential Element(s) Missing
A sale of property under forced sale conditions does not meet all the criteria of a normal market transaction in that there is some element of undue compulsion or influence affecting the seller. One of the essential elements of a market valuation is therefore missing.

2.5 Circumstances
The circumstances surrounding a forced sale usually involve:
an owner under some form of duress or pressure, financial or otherwise, to sell the property; or,
a third party such as a receiver or mortgagee in possession of the property.

2.6 Marketing Conditions
A forced sale of property may involve:

an inadequate exposure to the market;
an unreasonably short period in which to achieve a sale;
an inappropriate selling method;
a vendor with a primary objective of recouping a loan or secured amount rather than obtaining the market price;
potential buyers being aware of the circumstances of sale and the seller’s weakened bargaining position;
other unusual factors.

Any one or all of the above can have a negative impact on the realisable price.

2.7 Effect of Varying and Various Markets
In some market conditions and in certain selling situations there may be little or no difference between a forced sale price and the market value of a property. The state of the market, the supply factors and the strength of the demand will influence each result.

3.0 Valuation Advice
3.1 Lender Requirements
The provision of a forced or distress sale ‘value’ in addition to a market value for a proposed mortgage is considered by this Institute to be a generally undesirable practice.
However it is recognised that some lenders require valuers to provide forced or distress sale assessments.

3.2 Use of Term and Endorsement
In these circumstances it is considered prudent for the valuer to use the term current forced sale price and to include an endorsement along the following lines:

This current forced sale assessment is based on
sale by the mortgagee (or receiver, etc, as appropriate)
at public auction or within a reasonable period
such auction having regard to the nature of the
subject property, after full and proper marketing
and it reflects the valuer’s view of the market
conditions prevailing at the date of this report.

3.3 Forced Sale Imminent

In circumstances when a forced sale is imminent such when a mortgagee is in possession of a property, a may provide an opinion of a forced sale expressed realisable price range and/or a most probable price on the market conditions and the specified selling circumstances at the time.

3.4 Realisable Forced Sale Price Range
The realisable forced sale price range and/or most probable forced sale price is likely to vary in relation to actual selling circumstances at the time of sale.

3.5 Not Generally Indicative
Any forced realisation of a property will usually reflect the particular and special selling circumstances of that transaction and a sale price achieved in these circumstances is therefore not generally indicative of realisable prices other similar properties under normal marketing conditions unless it can be viewed as consistent with most other
transactions in the market.

3.6 GST Caution
Specific legal and/or accounting advice will need to be
regarding the GST implications for this guidance note.