Typically, the residual value is assigned to property that was seized as a result of the debt of the organization or individual. The market price may differ significantly from the residual value. Such property usually comes true faster and, accordingly, cheaper, because the loan or debt must be repaid from the proceeds from it.
It also happens that the residual value of property cannot cover the debts of an individual, because lenders sell everything in a very short time. What plays a role here is how the property is seized.
The company that gave the property, which can be assessed with a loan, can rely on loyalty from the bank. For example, the withdrawn can be sold at a bargain price, which will correspond to the size of the payment.
If property is seized by force, then waiting for leniency is, to put it mildly, stupid. The property will be put up for auction with very short terms of sale. Many buyers of real estate in the markets are not averse to seizing such a moment and acquiring it in order to sell more expensive. In the United States, liquidation value can also be compelled, although it is most often taken in an orderly way, that is, at the price that corresponds to debt.
Thus, the residual value is the price for the debtor's property, which does not correspond to the market value. It is received for sale in extremely short terms, which do not meet the standards set for such commercial operations.
Currently, there is a considerable problem in connection with different interpretations of residual value, because there are many inconsistencies in the law related to this term.
The approach to the revaluation process of enterprise assets can be profitable, comparative and costly. There are three approaches, but there is only one solution, so it’s worthwhile to responsibly approach the issue of calculating residual value.
The best option would be a comparative approach, that is, an approach based on the selling prices of similar products on the open market. This option is suitable if the time to sell the asset is not as much as we would like. Analyzing the open market, you can see what the cost of the object is determined by the buyer. But for the final decision, it is worth considering all the results obtained in the framework of all three approaches.
When calculating the residual value, you can use two methods:
- a method based only on a comparative approach. Unfortunately, this approach can be used only in the situation if you have all the information on the transaction prices in case of forced sales;
- the indirect method is based in its calculations on the residual value of the object on the open market. Using the indirect method, you need to determine the discounts on the fact of forced sales.
Usually, the expert method is used to determine the nature of the forced sale discount, since the amount of necessary information is limited. The calculation of the correction factor is based on factors that are determined by the level of decrease in the market value of each specific type of object.
How to assess the cost of an apartment taken from the owner for non-payment of a loan, you will learn if you contact the professionals in this matter. Most banks have their own appraisers who have a high level of qualification and can quickly determine the price of a property.
Why do we need an asset valuation and why should an appraiser be involved?
Salvage value is aimed at solving a number of issues that depend on users of such information. The main consumers of such information are credit managers, enterprise managers, as well as arbitration managers.
For example, the knowledge of the liquidation value is necessary for the loan manager to assess the property pledged when receiving a loan. In such a situation, the manager, and the bank issuing the loan, will need the help of a specialist - an appraiser who will determine the liquidation value of a particular object. Not the fact that the object will be realized, it is simply used as a safety net in case of non-payment of funds to the bank.