Liquidation value is one of the recognised value definitions used in jewellery appraisal and refers, broadly, to the price at which an item would change hands if the seller were under compulsion to sell within a constrained timeframe and into a market that may not include the most favourable buyers. It is distinct from, and generally lower than, both retail replacement value and fair market value.

The standard appraisal value definitions

The accepted hierarchy of appraisal values runs, from highest to lowest in most cases: retail replacement value, the cost of replacing the item at retail; fair market value, the price at which a willing buyer and willing seller would transact in an open market with neither under compulsion; orderly liquidation value, the price obtainable in a planned sale into the existing trade channels; and forced liquidation value, the price obtainable in an immediate or auction sale, typically with limited bidder participation. Each value definition has its appropriate use and they should not be substituted for one another.

Use cases

Liquidation value is the relevant figure in several specific situations. Estate liquidations, particularly when the executor must close the estate within a defined statutory period, may rely on orderly or forced liquidation values. Bankruptcy and insolvency proceedings explicitly require liquidation valuations. Loan-against-jewellery facilities, including pawnbroking and asset-finance, generally lend against a liquidation value rather than retail or fair market, because the lender's recovery in the event of default depends on the liquidation outcome. Tax purposes, particularly for charitable donation, gift and estate tax assessments, generally require fair market value rather than liquidation, but jurisdictional rules vary.

The relation to retail

For commonly traded categories such as round brilliant diamonds in standard sizes and qualities, liquidation values typically run between 25 and 50 per cent of retail replacement, depending on the specific item and the market conditions. For coloured stones and finished jewellery the discount can be larger, reflecting the lower liquidity of these categories. For high-end, signed and named pieces, particularly from the major twentieth-century maisons, the discount can be substantially smaller, since strong auction provenance can sustain a liquidation value much closer to fair market.

The professional standard

An appraisal report should clearly state which value definition has been used and the date of valuation. Report users should understand the distinction; a report supplied for insurance replacement purposes is not a substitute for a liquidation appraisal and vice versa. The Uniform Standards of Professional Appraisal Practice (USPAP) in the United States and the equivalent professional standards in Canada, the United Kingdom, Australia and elsewhere set out the documentary requirements for each value definition.