Definition of Distressed Sale

What is a "distressed sale"? What is the definition of a "distressed sale"?

A "distressed sale" occurs when an asset is sold quickly because the owner of the asset is under considerable financial duress.

Because the owner willing to sell the asset so quickly, the asset is usually sold for an amount that is usually considerably less than the actual market value.

For instance - let's say that a person is getting very low on cash. This person figures that they only have a week until they are totally broke and out of money.

This person owns a valuable painting that is currently valued at approximately $50,000. In order to raise some cash, this person decides to dump the painting quickly.

A buyer for the painting is found. However, the buyer learns that the seller is "distressed", which leads the buyer to make a lowball offer for the painting - $20,000.

No other buyers for the painting emerge, and the distressed seller agrees to the $20,000 purchase price.

This is the definition of a "distressed sale".

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