What does Disposition Value Mean?
Disposition Value assumes a shorter than average marketing time, due to the fact that the seller is under pressure to sell relatively quickly.
“The most probable price that a specified interest in real property is likely to bring under all of the following conditions:
- Consummation of a sale within a future exposure time specified by the client.
- The property is subjected to market conditions prevailing as of the date of valuation.
- Both the buyer and seller are acting prudently and knowledgeably.
- The seller is under compulsion to sell.
- The buyer is typically motivated.
- Both parties are acting in what they consider to be their best interests.
- An adequate marketing effort will be made during the exposure time specified by the client.
- Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.
- The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”
Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).
What it Means
Disposition Value is commonly used in situations in which the seller is under some sort of pressure to sell within a relatively quick time frame. One of the ways this differs from Market Value is with marketing time: Market Value would assume a “normal” marketing period (essentially the time it takes from list to under contract) which is based on the prevailing market conditions. In cases where a seller needs to sell quicker than the average time frame it is taking comparable properties to go from list to under contract, there is commonly some level of discount required to attract interest.
Conversely, Disposition Value differs from Liquidation Value because the former assumes “compulsion to sell” while the latter assumes “extreme compulsion to sell”. Thus, Disposition Value falls in between “motivated to sell” which is Market Value, and “extremely motivated to sell” which is Liquidation Value.
For example, say an owner of a small flex condo had to sell their property to pay off a kid’s college tuition which was due in 3 months, though the prevailing marketing time was 6 months to sell this type of property in this market. This owner should seek Disposition Value if ordering an appraisal because Market Value would not take into account the discount required to attract a buyer within this time period.
In the same example, if they had to pay it off in 45 days, and were therefore under extreme pressure to sell, a more appropriate value to seek would be Liquidation Value.
Refer to our Value Vault resource section for additional appraisal definitions and appraisal related topics.