Market Approach in Machinery and Equipment Valuation
The market approach is a method that machinery and equipment appraisers use to value assets. This approach looks at recent transactions of machines that are similar to the subject asset being appraised. It may also look at the offering prices of similar pieces of equipment as well. When exact machinery and equipment comparables are not found, adjustments are made to the selling or offering prices to equate them to the one being appraised. This method is not typically used when the asset is "unique".
This approach is the most reliable of the three approaches when there is sufficient data available of similar machinery and equipment that has sold or is being offered for sale. Making sure the sources of the data are reliable is an important step in the process. The used equipment market which consists of dealers, auctions, and public and private sales is a source for some of the data. Transactional databases are typically used for developing an opinion of machinery and equipment value. Some of the factors that are considered when comparing the subject machine to a comparable include: manufacturer, model, effective age, condition, capacity, price, time of sale, type of sale, location, and accessories, amongst other characteristics. Equipment appraisers adjust comparables to include the direct and indirect installation costs when calculating fair market value in continued use or installed. Machinery and equipment appraisals using the market approach have direct market data to support the conclusion of the appraiser.