Which method of developing an effective tax rate involves comparing properties within the market?

The method that involves comparing properties within the market to develop an effective tax rate is the market comparison approach. This approach relies on analyzing recent sales of similar properties in the same area to determine the value of a property. By assessing how much comparable properties have sold for, appraisers can derive a market-supported effective tax rate that reflects current conditions.

This method is particularly useful because it provides a direct reflection of what buyers are willing to pay for similar properties, thus offering an accurate sense of value based on actual market data. In real estate, the principle of substitution suggests that a property’s value is influenced by the price of similar properties. Therefore, using market comparison allows for an effective assessment of a tax rate based on tangible, current market indicators.

While the other methods listed—like the EAT formula, income approach, and cost basis method—serve distinct purposes in property valuation, they do not specifically center on comparing market properties directly. The EAT formula might involve calculating an effective tax attributable to property use but lacks the direct market comparison aspect, and the income approach primarily focuses on the potential income a property can generate rather than its market value. The cost basis method considers the cost of creating a property but does not leverage the market data for comparative analysis.