What’s
the Difference Between a Control Premium and a Minority Discount?
Both the Control Premium and the Minority Discount are really
internal calculations used by the appraiser to match the control
characteristics of the subject property (i.e. whether or not
it comprises a controlling interest) to the source of information
from which the value is determined.
For example, if the appraiser is valuing a minority interest
in a small business and relies on sales of controlling interests
of such businesses - the kind of comparable sales information
gotten from business brokers - he will have to adjust for
the difference in control power between the subject (that
has no control) and the buyers of the comparable companies
(who enjoyed complete control).
In this case, he would apply a minority discount or discount
for lack of control. Conversely, if he derived his value estimate
from non-controlling transactions - such as those observed
in the stock market - and he were appraising a controlling
interest, he might apply a control premium in respect of this
difference.
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