Nonmarketability

Nonmarketability refers to the state or condition of an asset, security, or product lacking sufficient appeal, liquidity, or desirability to be readily sold or traded in a market. It often stems from factors such as illiquidity, lack of investor interest, restrictions on transfer, unfavorable market conditions, or a perceived lack of value. This can result in a lower price than its potential value or an inability to be sold at all, impacting valuation, investment returns, and business operations. The degree of nonmarketability can vary depending on the specific asset, market, and economic conditions.

Nonmarketability meaning with examples

• The illiquid nature of the small startup's shares presented a significant nonmarketability issue to potential investors. Without a clear path to exit, investors were reluctant to commit capital, fearing they'd be unable to sell their holdings when needed. This nonmarketability ultimately hindered the company's ability to secure funding at a valuation reflecting its long-term potential and slowed down its overall growth and expansion plans.
• Artwork created by a lesser-known artist might face nonmarketability challenges, despite its artistic merit. The lack of established market demand, collector interest, or the need for professional appraisals would render the piece difficult to sell, even at a reasonable price. This would make it challenging to achieve profitability, hindering the piece's future growth in the market, making it hard to sell at its intended value.
• Restraints on transferring shares, as seen in some private equity investments, create a form of nonmarketability. Investors cannot readily convert their holdings to cash, binding them to a lengthy time horizon, and diminishing the attractiveness of the investment. This lack of flexibility translates to reduced value. It often leads to the demand for a discount for this lack of accessibility, and thus, lower valuations in overall sales.
• Following the economic downturn, many commercial real estate properties experienced a period of nonmarketability. Businesses were hesitant to lease space, leading to an oversupply and a decrease in values. This lack of demand significantly affected property owners, making it difficult to secure tenants or sell their properties without substantial losses. Such conditions can cause property holders to hold real estate at decreased values for extended periods of time.