What Is a Market Approach?

The market approach, also known as the market approach, is an asset valuation method that determines the value of an asset by comparing the similarities and differences between the asset being evaluated and recently sold similar assets, and adjusting similar market prices. . The market method is the simplest and most effective method, because the information in the evaluation process comes directly from the market, and at the same time it evaluates the upcoming asset behavior. However, the application of the market law is closely related to the establishment and development of the market economy and the degree of marketization of assets. In China, with the establishment and improvement of the socialist market economy, it has provided effective application space for the market law, and the market law has increasingly become an important asset evaluation method.

Market law

The market method is the simplest and most effective method, because the information in the evaluation process comes directly from the market, and at the same time it evaluates the upcoming asset behavior. However, the application of the market law is closely related to the establishment and development of the market economy and the degree of marketization of assets. In China, with the establishment and improvement of the socialist market economy, it has provided effective application space for market law, and market law has increasingly become an important

1. A fully developed and active asset market is required. Under the conditions of a market economy, there are many types of commodities traded on the market, and assets as commodities are an important aspect of market development. In the asset market, the more frequently assets are traded, the easier it is to obtain prices for assets similar to the asset being evaluated.

2. Reference materials and comparable indicators, technical parameters and other information with the assets being assessed can be collected. Using the market approach, it is important to be able to find a reference that is the same or similar to the asset being evaluated. However, it is difficult to find assets that are exactly the same as the assets being evaluated. This requires adjustments to similar asset references. The availability of relevant adjustment indicators and technical parameters is the key to determining whether the market law is used.

The application of market method for asset evaluation can be divided into three steps: market survey, selection of reference objects; factor comparison, adjustment of differences;

In asset evaluation, according to the similarity between the reference object and the evaluation object, the specific methods of the market method can be divided into two categories: one is the direct comparison method; the other is the indirect comparison method.

Direct market approach

The direct comparison method refers to the use of the transaction price of a reference object to directly compare one or several basic features of the evaluation object with the same or several basic features of the reference object to obtain the basic feature correction coefficient or the basic feature difference between the two. A type of method that is modified based on the transaction price of the reference object to obtain the value of the object of evaluation. Its basic formula is:

Evaluation target value = reference transaction price × correction factor 1 × correction factor 2 × ... × correction factor n

Or the value of the evaluation object = the transaction price of the reference object ± the basic feature difference 1 ± the basic feature difference 2 ± ... ± the basic feature difference n

The direct comparison method is intuitive, concise, and easy to operate, but usually requires higher comparability between the reference object and the evaluation object.

When the difference between the reference object and the evaluation object is only reflected in a certain basic characteristic, the direct comparison method may also evolve into the following specific evaluation methods, such as the current market method, market price discount method, functional value analogy method, and price index method Hecheng new rate price adjustment method.

If the difference between the reference object and the evaluation object is not only reflected in a certain basic characteristic, the application of the above evaluation method can be evolved into the calculation of the correction coefficients of the basic characteristics of the reference object and the evaluation object, such as the transaction situation correction factor ( Normal transaction situation ÷ reference object transaction situation), functional value correction factor (assessment capacity of reference object ÷ reference object production capacity), transaction time correction factor (fixed base price index of evaluation object ÷ fixed base price index of reference object), and degree of newness Coefficient (new rate of evaluation object ÷ new rate of reference object), etc.

The direct comparison method has the characteristics of strong applicability and wide application. However, the law has higher requirements on the quantity and quality of information materials, and requires assessors to have rich assessment experience, market experience and assessment skills.

In the specific operation process, the following technical methods are used more frequently in the direct comparison method: (1) market price analog method; (2) value ratio method;

Indirect comparison

The indirect comparison method is also the most basic evaluation method in the market method. This method uses the national, industry or market standards of assets (standards can be comprehensive standards or sub-standards) as benchmarks, and respectively evaluates the evaluation object and the reference object as a whole or compares them with each other to obtain the evaluation object and The score of each reference object. A type of evaluation method that uses the market transaction price of the reference object and the ratio (coefficient) of the score of the evaluation object to the score of the reference object to obtain the value of the evaluation object.

Because the indirect comparison method requires the use of national standards, industry or market standards, it has many limitations in application, and is not widely used in asset valuation practice. ^[2]