How can appraisers determine the appropriate marketability discount for each valuation situation? This is a critical question since the discount for lack of marketability is the single largest valuation adjustment factor in most minority interest appraisals. The marketability discount is normally expressed as a percentage to reflect the difference between two prices, the freely marketable price, which for closely held businesses is a hypothetical construct since by definition there is no market for their shares, and a nonmarketable price.
What gives rise to a marketability discount, or the discount for lack of marketability, or DLOM?
How do we determine the DLOM, given the central objective of arriving at credible nonmarketable minority values?
What methods are used to quantify DLOM? How do the methods rank in terms of valuation theory?