Definition of Distressed Assets
What is a "distressed asset"? What is the definition of the term "distressed asset"?
A distressed asset is an asset that is being sold because its owner is forced to sell it.
Distressed assets usually sell for below their perceived value due to the fact that the owner is being forced to sell.
Let's give you a few examples of a "distressed asset":
Example #1 - Joe Smith is drowning in debt and needs to sell off his prized collection of vintage automobiles in order to keep his head above water. These cars are "distressed assets" due to the fact that Joe is basically in a panic to sell them. If would-be buyers are aware of Joe's tumultuous financial situation, then they may try to lowball Joe in order to buy the assets on the cheap.
Example #2 - XYZ Inc. declares bankruptcy. All of XYZ Inc.'s office furniture go up for sale in an auction due to this bankruptcy. The office furniture would be considered a "distressed asset" due to the fact that XYZ Inc. is being forced to sell due to bankruptcy.
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