Valuation: The Market Approach - The Wiley Finance Series

Valuation is the process of determining the value of an asset. Assets can be anything from a company to a house to a piece of art. The market approach to valuation is one of the most common methods used to value assets. This approach involves comparing the asset to similar assets that have recently been sold.

Valuation: The Market Approach (The Wiley Finance Series)

by Heidi Taylor

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Language	:	English
File size	:	8509 KB
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The Theory of the Market Approach

The theory of the market approach is based on the assumption that the value of an asset is equal to the price that a willing buyer would pay for it. This price is determined by the interaction of supply and demand in the market. When there are more buyers than sellers, the price of an asset will rise. Conversely, when there are more sellers than buyers, the price of an asset will fall.

The Practice of the Market Approach

The practice of the market approach involves comparing the asset to be valued to similar assets that have recently been sold. This comparison is known as a comparable sales analysis. The comparable sales analysis should take into account the following factors:

• The location of the asset
• The size of the asset
• The condition of the asset
• The recent sales prices of similar assets

Once the comparable sales analysis has been completed, the appraiser will develop an opinion of value for the asset. This opinion of value is based on the appraiser's analysis of the market data and their knowledge of the valuation process.

Case Studies

The following are some case studies of how the market approach has been used to value assets:

• In 2019, a company called XYZ Corporation was acquired by another company called ABC Corporation. The purchase price of XYZ Corporation was based on a market approach valuation. The valuation was conducted by an independent appraiser who compared XYZ Corporation to similar companies that had recently been acquired.
• In 2020, a house in San Francisco was sold for $1 million. The sale price was based on a market approach valuation. The valuation was conducted by a real estate agent who compared the house to similar houses that had recently been sold in the same neighborhood.
• In 2021, a painting by Pablo Picasso was sold at auction for $100 million. The sale price was based on a market approach valuation. The valuation was conducted by an art dealer who compared the painting to similar paintings by Picasso that had recently been sold at auction.

The market approach is a widely used method for valuing assets. This approach is based on the assumption that the value of an asset is equal to the price that a willing buyer would pay for it. The practice of the market approach involves comparing the asset to be valued to similar assets that have recently been sold. This comparison is known as a comparable sales analysis. The comparable sales analysis should take into account the following factors: the location of the asset, the size of the asset, the condition of the asset, and the recent sales prices of similar assets.

Valuation: The Market Approach (The Wiley Finance Series)

by Heidi Taylor

5 out of 5

Language	:	English
File size	:	8509 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Word Wise	:	Enabled
Print length	:	213 pages
Lending	:	Enabled

FREE