Passengers traveling on the London Underground are famously cautioned to “mind the gap ” that exists between the train’s door and the station platform. Real estate attorneys, lenders, and experts are warned to “mind the gap” of a different sort when engaged in litigation involving distressed commercial real estate , such as bankruptcy or foreclosure proceedings. In this context, the gap is the difference between the appraised market value and the proceeds or sales price that can be reasonably expected in a disposition of the asset under distress conditions. It varies by asset type and market; the gap may be minimal for high-demand core assets attracting institutional money in strong markets, or the gap may be highly significant for assets such as vacant land in overdeveloped markets.
Market value is usually based on the passing of title from seller to buyer under conditions where (1) the buyer and seller are typically motivated ; (2) both parties are well informed and acting in what they consider their own best interests ; (3) a reasonable time is allowed for exposure in the open market ; (4) payment is made in cash or in equivalent financial arrangements ; and (5) the price represents the normal consideration for the property, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.