Liquidation Differential

When you have to sell something in a hurry, you can’t always get full value.

You’ve got to get out of town quickly because you accidentally killed a local drug lord’s beloved cat. You sell your coin collection in order to raise some traveling money. It’s worth $2,000 under normal circumstances, but you can only get $1,500.

That $500 difference represents the liquidation differential. It’s the discount an asset has when being liquidated versus what it would have if you still owned it.

The concept comes up most often in real life when dealing with bank failures.