MARKET FOCUS

Jonathan Mcnish
grupo (212032A_761)
03 of 2020
 Topic Description:
• The market approach models market
behavior by comparing the valued
property with comparable properties
sold or offered recently. These are
selected based on their similarity to
the subject property. Their sales prices
are then adjusted to reflect their
differences from the subject. Finally, a
market value is estimated for the
subject based on the adjusted sales
prices of the comparable properties.
• The market approach seeks to answer the question, “what is the fair
market value of this asset?” To answer this question, the valuator
needs to survey recent transactions involving similar assets. Because
these assets are unlikely to be identical to the one being valued,
various adjustments will need to be made.
• For example, such as residential real estate or publicly traded shares,
there is often ample data available, making the market approach
relatively easy to employ. In situations where limited data is available,
the valuator may need to rely on alternative methods such as the cost
approach or discounted cash-flow analysis (DCF).
• Some advantages of the market approach based on publicly available
data on comparable transactions. The primary disadvantage of the
market approach is that it can be impractical in situations where few
if any comparable transactions exist, such as in the case of a private
company operating in a niche market with few competitors.
 Example of the Market
Approach
• Finally, I will give an example to give more quality to the market approach
method. Suppose you are in the market to purchase a new apartment. You
find a listing for an apartment in your preferred neighborhood being offered
for $200,000. The unit is a 1-bedroom, 1,000 square-foot apartment with 1
bathroom. It is in good structural condition but requires some minor
renovations. Although it is in a desirable neighborhood, its view is obscured
and it does not have an in-suite washing or drying machine. 
• Although you like the apartment, you feel that the asking price is too high.
Since the apartment has been listed for over a month, you begin to suspect
that if you make a fair offer, the seller might accept it even if it is below their
asking price.
• To that end, you set about determining the apartment’s fair market
value by looking up examples of similar apartments in the same
neighborhood that sold in the last year. The findings are the
characteristics that will be taken into account for the selection of the
product, in this case, the apartment. Number of rooms, area, number
of bathrooms, renovations required, etc.