What is a Market Approach?

A market approach is a strategy that focuses on the task of appraising the value or worth of an asset or investment. Typically, this particular approach involves identifying recent sales of assets or investments that are considered very similar in nature, and arriving at a reasonable selling price based on those transactions. Sometimes referred to as a market-based or a market comparison approach, this strategy can be utilized in a number of different settings, ranging from setting minimum prices for an online auction to buying real estate as part of an investment scheme.

The basic concept behind the market approach is very simple, since it involves nothing more than researching the sales of assets that are very much like the assets that the investor wishes to acquire or to sell. For example, if an investor is interested in buying a residence for use as a rental property, he or she will identify sales of properties that have similar amenities and features. This would include focusing on properties with similar acreage, square footage, and number of rooms. Particular attention should be paid to recent property sales in the same or similar neighborhoods as the real estate that the investor is interested in acquiring. Using a market approach makes it easier to determine if the sales price is within reason, or if some negotiations with the current owner are in order.

Investors who wish to sell a parcel of real estate can also benefit from the market approach. Here, the goal is to evaluate the terms surrounding the sale of similar properties in recent weeks, and use that data to set the sale price and terms for the real estate that the investor wishes to sell. Employing this approach can often help to make sure the sales price is likely to attract attention from potential buyers, increasing the possibility of selling the property sooner rather than later.

The straightforward process of the market approach can be used in a number of settings. Businesses can use this approach to set prices for all sorts of goods sold in stores, increasing the ability to successfully compete in that market and attract attention from consumers. Even with something as simple as an online auction, sellers can scan the auction site for similar goods and structure their auctions to be competitive with the others, increasing the chances of receiving bids and ultimately making a little money for the effort.