Which leads us to write again about the “Forced Sale” is a … incomprehension!

It has been recurrent that public bodies, in the evaluation of properties owned by them, ask the external valuer that, in addition to the market value, also estimate “Forced Sale Value” (FSV).

Forced Sale Value

This concept is addressed both in the International Valuation Standards (IVS) and in the European Valuation Standards (EVS), which are unanimous in stating that the FSV is not a basis of value, passing the definition of the market value to which they are added some special assumptions. However, to be estimated (at the customer’s request) a set of conditions must be met. These are some of the conditions:

The forced sale value and public bodies
Photo by Irina Ermakova on Unsplash

-The seller must be subject to restrictions that require the sale of the property under conditions that are not in accordance with the definition of Market Value.

-These restrictions must be clearly identified, including the consequences of not selling in the specified period, making appropriate assumptions. If these restrictions do not exist at the valuation date, they must be clearly identified as special assumptions.

What is our perplexity?

Our perplexity is not knowing the answer to the following questions (the public bodies does not provide them either):

-While the public bodies is the owner of the properties, what are your reasons for being restricted as a seller?

-What is the restriction in relation to the market value?

-Won’t the public bodies property have an adequate commercialization period? Why?

-The seller (public bodies) does not act freely, does not act in an informed and prudent way? Why?

-Is the seller (public bodies) coerced into selling? Why?

In truth, we do not believe that any of these constraints apply to the sale of public bodies property and that when they asks for the FS it is a pure waste of time.

The rest we already know, when the FS value is estimated, it is only a purely financial estimate, with the assumption that the sale will only be carried out in an extended period of time, updating the Market Value from the probable date of sale ( subjective) for the current date.

Market Value

Finally, we recall the notion of market value, according to the IVS. Market value is “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

This article was prepared by João Fonseca, real estate appraiser and expert appraiser of machinery and equipment registered with the CMVM (Portuguese Securities Market Commission) with registration PAI / 2010/0019, member 7313161 of RICS (Royal Institution of Chartered Seurveyors) , RICS Registered Valuer, member of TEGoVA and European Registered Valuer REV-PT / ASAVAL / 2023/8, Member of the Fiscal, Disciplinary and Deontological Council of ANAI (National Association of Real Estate Appraisers), Expert of the Lisbon Stock Exchange Appraiser , Associate Thinker on the blog out-of-the-boxthinking.blogspot.pt. He is co-author of the book “Sustainable urban regeneration”, ISBN 978-989-8414-10-6. He has a Postgraduate Degree in “Management and Valuation in Real Estate” by Católica Porto Business School and has a training course in “Real Estate Valuation” by the Escola Superior de Imóveis Imobiliários. He has offices at Rua Pinto Bessa, 522, RC, Centro, Esquerdo, 4300-428 Porto and at Rua Visconde de Santarém, 75 C, 1000-286 Lisboa. He is a trainer in real estate appraisal at Domínio Binário.

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