Guide · Updated July 29, 2026
Income vs. sales comparison vs. cost approach — how appraisal districts value commercial property
Every Texas commercial assessment starts with an appraisal district estimating what a property was worth on January 1 — using some blend of three classic valuation approaches: cost, sales comparison, and income. Knowing which approach produced your value tells you what kind of evidence speaks to it. This guide explains all three, and where the equity comparison fits alongside them.
The three approaches, side by side
How appraisal districts value commercial property
| Cost approach | Sales comparison approach | Income approach | |
|---|---|---|---|
| Core question | What would it cost to replace this building today? | What do similar properties sell for? | What income does this property produce? |
| Shape of the math | Land value + replacement cost of improvements − depreciation | Recent sale prices of similar properties, adjusted for differences | Net operating income ÷ capitalization rate |
| Key inputs | Land values, construction cost tables, age and condition | Verified sale prices, adjustment factors | Market rents, vacancy, operating expenses, cap rates |
| Typically leaned on for | Newer buildings and special-use properties with few sales or income analogs | Property types with active, observable sale markets | Income-producing commercial: office, retail, industrial, multifamily |
| The Texas wrinkle | Cost tables and depreciation schedules are standardized for mass appraisal | Texas is a non-disclosure state — sale prices generally are not public, limiting this approach for commercial property | Districts estimate the income inputs at market level, not from your actual books — a common source of disagreement |
The cost approach
The cost approach builds the value from parts: what the land is worth, plus what it would cost to construct the improvements today, minus depreciation for age and condition. Districts run it from standardized cost tables because they must value every parcel at mass scale. It carries the most weight for newer buildings — where construction cost is a reasonable proxy for value — and for special-use properties that rarely sell and produce no rent, where the other approaches have little to work with.
The sales comparison approach
The sales comparison approach asks what similar properties actually sold for, adjusting each sale for differences in size, age, location, and condition. It is intuitive and, where sale data is rich, persuasive. The Texas wrinkle is structural: Texas is a non-disclosure state, so sale prices generally are not part of the public record. Districts gather what they can from voluntary surveys and subscription services, but neither owners nor districts can build a fully public, independently checkable sales-comparison case for most commercial property — which is a large part of why the equity ground matters so much here.
The income approach
For income-producing property, districts commonly estimate value as net operating income divided by a capitalization rate — with market-level assumptions for rent, vacancy, expenses, and the cap rate itself. Every one of those inputs involves judgment, and the district’s market-level assumptions may not match a specific building’s reality. Owners who protest on income grounds bring their own actual income and expense records; those numbers belong to the owner, and any tool that invented them for you would be guessing. That is why income evidence is always owner-supplied.
Where the equity comparison fits
Cost, sales comparison, and income are all ways to estimate market value. The unequal-appraisal test in Tax Code §41.43(b)(3) sits on a different axis entirely: after the district has set values — by whatever approach — the law requires the result to be equal and uniform. A protest on that ground asks one question: is this property’s assessed value above the median assessed value of a reasonable number of comparable properties, appropriately adjusted?
That makes the equity comparison the one argument fully computable from public data in a non-disclosure state: it needs no sale prices and no income statements — only the district’s own published roll. How the test works, step by step, is covered in the unequal-appraisal (equity) guide, and the quick screening version is in the over-assessment signals guide. To see the shape on your own numbers, the free estimator is on the homepage.
Questions owners ask
Which approach do Texas appraisal districts use for commercial property?
It depends on the property type and the data the district holds. Income-producing properties — offices, retail, multifamily — are commonly valued with the income approach; newer or special-use buildings lean on the cost approach; the sales comparison approach is used where reliable sale data exists. Districts value at mass scale, so the models are standardized rather than parcel-by-parcel studies.
Why is the sales comparison approach weak for Texas commercial property?
Texas is a non-disclosure state: sale prices generally are not public record. Districts obtain some sale data through voluntary surveys and subscriptions, but the public record does not carry prices — which limits how far a sales-comparison argument can be built or checked from public data, for districts and owners alike.
What is the income approach formula?
In its simplest form, value equals net operating income divided by a capitalization rate. Both inputs are judgment-laden: the district estimates market rents, vacancy, expenses, and a cap rate for the class. Owners who protest on income grounds bring their own actual income and expense data — that data belongs to the owner, and no software should invent it for them.
Is the equity comparison a fourth appraisal approach?
No. Cost, sales comparison, and income are ways an appraisal district estimates market value. The unequal-appraisal test in Tax Code §41.43(b)(3) is a statutory fairness check that runs after values are set: it asks whether your assessed value exceeds the median of comparable properties' assessed values on the same roll, appropriately adjusted — whatever approach produced those values.
Can an owner raise both market value and unequal appraisal in one protest?
Yes. The Comptroller's Form 50-132 lists the grounds and owners may select every ground that applies. The two arguments run on different evidence — market value on sales or income data, unequal appraisal on the roll's own assessed values — and under SB 2063 (2025), market-value evidence cannot defeat the unequal-appraisal ground.
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