Texas courts recognize the three traditional approaches to determining market value: the Sales Comparison Approach, the Cost Approach, and the Income Approach.

State v. Cent. Expressway Sign Assocs., 302 S.W.3d 866, 871 (Tex. 2009) (CESA); City of Harlingen v. Estate of Sharnoneau, 48 S.W.3d 177, 182 (Tex. 2001).

The traditional Income Approach involves the capitalization of the net operating income of properties that produce rental income to arrive at a present value.

CESA, 302 S.W.3d at 871; Sharboneau, 48 S.W.3d at 183.

Texas courts recognize that “income from a business operated on the property is not recoverable and should not be included in a condemnation award.”

CESA, 302, S.W.3d at 871.

This is true even when there is evidence that the business’s location is crucial to its success.

Id.

In CESA, the property owners argued that because revenue was derived from the intrinsic value of the land, the business revenue should be treated like rental income for purposes of the Income Approach.

Id.

The Supreme Court of Texas rejected this argument.

Id. at 871-73.

Thus, TxDOT will not approve any appraisal of convenience stores or retail fuel properties that uses business income or revenue to value real property.

Appraisals that utilize the following methods to value a convenience store and/or retail fuel store will not be approved because of their reliance on business income:

a Comparison Approach that utilizes a gross profit multiplier;
an Income Approach that capitalizes Earnings Before Interest, Depreciation, Taxes, and Amortization (EBIDTA);
any method that compares gallons sold or in-store merchandise sold.

Appraisals of convenience store properties should be carefully examined for methodologies that appear on the surface to be acceptable, but may still include noncompensable business income, goodwill, intangible assets, or furniture, fixtures and equipment (FF&E).