By: Zach Cannon | Consultant – Propery Tax
Navigating the nuances of property tax codes in Florida is often challenging for commercial real estate owners and investors. One of the key phrases you’ll hear is the “first and eighth factors,” which refers to specific subsections of Florida Statute 193.011. More often than not, appraisers in Florida avoid applying the “first and eighth factors” due to the likelihood of large value reduction adjustments to properties, hoping it goes unnoticed and unmentioned. Learning more about how the “first and eighth factors” impact Florida real estate assessments can help property owners not only better understand their assessment values, but also advocate for themselves upon receipt of their annual TRIM notices.
At its core, Florida Statute 193.011 lays out eight important factors that property appraisers must consider when assessing property values for tax purposes. The first factor focuses on determining the present cash value of the property – essentially, how much a willing buyer would pay a willing seller in a typical market transaction (subsection 1). The eighth factor looks at the net proceeds from the sale, which accounts for all the usual costs and fees associated with selling the property (subsection 8).
In simpler terms, the first factor is about what the property is worth, and the eighth factor is about the cost of the sale vs. actual profit after the property is sold. The eighth factor is what is most commonly left out in appraisals, as it is not required by other states to be considered and typically is not immediately factored when purchasing a property or considering value. Forgotten fees in the sale of commercial real estate can amount to many thousands of dollars in over-assessed value on your assessments each year.
The Florida Supreme Court has coined the term “reasonable fees and costs of sale” to protect property owners from their properties being overvalued, and ultimately overtaxed, due to the lack of consideration of these costs. This grouping includes typical expenses like:
The Florida Supreme Court considers these typical costs you would encounter at closing, thus playing a critical role in accurately assessing property values.
The Florida Department of Revenue (DOR) issued a bulletin (PTO Bulletin 11-01) indicating that these cost of sale adjustments should be applied regardless of whether appraisers are using the cost, income, or sales comparison approaches. This means that when determining value, the eighth factor could result in a lower value than the fair market estimate, which is crucial for accurate tax assessments.
While the DOR often assumes a 15% adjustment for cost of sale, it’s not a hard and fast rule. Property appraisers are required to submit a report (Form DR-493) to the DOR every year, detailing the adjustments made for various properties. If they deviate from the 15% guideline, they must justify those changes with proper documentation.
The “first and eighth factors” are essential in understanding how property values are determined for tax purposes in Florida. It is imperative to partner with an experienced property tax provider in Florida to make sure counties apply these adjustments across your entire portfolio. Appraisers must consider both the current cash value and the net proceeds from a sale, along with reasonable costs involved. Ultimately, this ensures that the final taxable value reflects what properties are truly worth in the real estate market. By grasping these concepts, you’ll be better equipped to navigate the property tax landscape and understand how your property is assessed. For proactive assistance with your Florida portfolio, contact Invoke Tax Partners’ today.
