From fair market value to judicial market value of real estate

ABSTRACT The paper proposes a brief analysis of the main elements that, on a theoretical, normative and situational basis, affect the value of properties placed as collateral for loans, with particular reference to the value they assume in the event that they are affected by an enforced procedure instead of being subject to normal sale, in free market conditions. Starting from the classic analytical estimate of the fair market value of a real estate asset in free market conditions, the paper will quantify the value that the asset should have when the appraiser has to indicate the value from which to start the judicial auction. Considering the regulatory mechanisms in place in Italy, the paper will put in evidence how a value calculated for an execution sale of a property occurring in a foreclosure process is considerably far from its fair market value and even more from its final judicial value, considered as the amount that will be recovered at the end of the sale of the property by judicial auction. For both debtors and creditors, the significant differences between fair market, execution and judicial values become an increasingly topical issue in the face of the growing number of default and distress of loans.