law-appraisal-of-market-value-of-property | condemnation |
APPRAISAL OF MARKET VALUE OF REAL ESTATE, REAL PROPERTY
Texas recognizes three approaches to determining the market value of condemned property: the
comparable sales method, the cost method, and the income method. City of Harlingen v. Estate of
Sharboneau, 48 S.W.3d 177, 182 (Tex. 2001). The comparable sales method is the favored approach, but
when comparable sales figures are not available, courts will accept testimony based on the other two
methods. Id. at 182–83. The cost approach looks to the cost of replacing the condemned property minus
depreciation. Id. at 183 (citing Religious of the Sacred Heart v. City of Houston, 836 S.W.2d 606, 615–16
(Tex. 1992)). The income approach is appropriate when the property would be priced according to the rental
income it generates. Sharboneau, 48 S.W.3d at 183 (citing Polk County v. Tenneco, Inc., 554 S.W.2d 918,
921 (Tex. 1977)). All three methods are designed to approximate the amount a willing buyer would pay a
willing seller for the property. Id. Texas law allows income from a business operated on the property to be
considered in a condemnation proceeding in two situations: (1) when the taking, damaging, or destruction of
property causes a material and substantial interference with access to one’s property, see City of Austin v.
The Avenue Corp., 704 S.W.2d 11, 13 (Tex. 1986); and (2) when only a part of the land has been taken, so
that lost profits may demonstrate the effect on the market value of the remaining land and improvements,
see City of Dallas v. Priolo, 242 S.W.2d 176, 179 (Tex. 1951). Absent one of these two situations, income
from a business operated on the property is not recoverable and should not be included in a condemnation
award. Courts have applied this rule for two reasons: first, because profits from a business are speculative
and often depend more upon the capital invested, general market conditions, and the business skill of the
person conducting it than it does on the business’s location; and second, because only the real estate and
not the business has been taken and the owner can presumably continue to operate the business at
another location. Herndon, 261 S.W.2d at 223.
State of Texas v. Central Expressway Sign Associates, No. 08-0061 (Tex. Nov. 20, 2009)(Subst. Op. by
O'Neill) (condemnation, proper method for determining market value, admissibility of expert testimony,
methods to appraise market value of condemned property)
THE STATE OF TEXAS v. CENTRAL EXPRESSWAY SIGN ASSOCIATES, ET AL.; from Dallas County;
5th district (05 06 00003 CV, 238 SW3d 800, 08 31 07)
motion for rehearing denied
The Court's opinion of June 26, 2009 is withdrawn and the opinion of this date is issued.
The Court reverses the court of appeals' judgment and remands the case to the trial court.
Justice O'Neill delivered the opinion of the Court.
(Justice Guzman not sitting)
Texas courts have refused to consider business income in making condemnation awards even when
there is evidence that the business’s location is crucial to its success. See, e.g., State v. Rogers, 772 S.W.
2d 559, 561–62 (Tex. App.—Amarillo 1989, writ denied) (refusing consideration of “going concern” and
“goodwill” values of auto parts store that caters to and depends upon nearby businesses); City of Austin v.
Casiraghi, 656 S.W.2d 576, 579–80 (Tex. App.—Austin 1983, no writ) (refusing to consider business income
of well-located restaurant); State v. Villareal, 319 S.W.2d 408, 410 (Tex. Civ. App.—San Antonio 1958, writ
ref’d n.r.e.) (upholding exclusion of evidence of income generated by grocery store); Marshall v. City of
Amarillo, 302 S.W.2d 943, 945 (Tex. Civ. App.—Amarillo 1957, no writ) (refusing to consider income
generated by pawn shop).