Florida Homes and Properties

Posts Tagged ‘Property Taxes’

A key factor in the present Florida real estate troubles is home affordability. Many other issues exist and can be considered part of the normal market fluctuations. However, affordability is invariably the essential element.

Comparisons of Home Prices and Family Income in 1980 and 2005

Let’s use Miami-Dade’s median home price and Florida’s median family income statistics for this purpose.
Median Home Price in 1980 – $75,000.

Median Home Price in 2005 – $372,000.

1989 Median Family Income in Florida = $ 21,355.

2005 Median Family Income in Florida (estimated) = $60,000.

Increase of Median Family income in the same period = 181%.

Increase of Median Home Price between 1980 and 2006 = 396%.

Note: These figures have not been fully verified. They have been taken from different sources, and could reflect some inaccuracy. They are used to graphically explain a tendency, and only in this context, will they serve the purpose of this essay.

Average property tax for new buyer (including Homestead exemption) in 1980: $ 850.

Average property tax for new buyer (including Homestead exemption) in 2005: $5,899. (Approximate figures)

Homestead exemption grants a $ 25,000 deduction on the home assessed value for homeowners who qualify and register with their county appraiser.

What is Save our Homes ?

In 1992, Florida voters approved an amendment to the Florida constitution that limited the amount of value a homestead property could increase for tax calculation’s purposes.
The law limits assessment increases to 3% percent or the increase of the Consumer price Index – whichever is less.
Non-Homestead property is assessed at the full market value annually.

Home Affordability as considered through FNMA guidelines

$36,588 Minimum Yearly Income, as per FNMA guidelines, was necessary to cover Median Home purchase in 1980, assuming 90% financing @ 12.5% annual interest, 1% insurance annual rate, (PITI= $854).

Note the very high interest rates prevailing in the 80’s. (PITI = Principal + Interest + Taxes + Insurance)

$134,086 Minimum Yearly Income as per FNMA guidelines, was necessary to cover Median Home purchase in 2005; assuming a 90% financing @ 6.5% annual interest, 1% insurance rates, (PITI=$3,152)

Roughly, FNMA basic guidelines require that no more than 28% of the buyer’s gross income should be dedicated to pay for his monthly PITI (Principal + Interest + Taxes + Insurance).

To be noted is the dwindling affordability despite the fact that mortgage rates in 2005 were half of what they were in 1980.

Impact of Property taxes as compared to median home values in 1980 and 2005

Property Tax for new buyers as a proportion of median home value in 1980 = 1,133%

Property Tax for new buyers as a proportion of median home value in 2005 = 1.586%

The heavier burden is partly due to the decline of the homestead exemption as a proportion of home value.

The $25,000 exemption represented 33.3% of the median home value in 1980.

It represented a measly 6.7% in 2005.

Percentage of Median Family income dedicated to Home Property Tax in 1980 = 4%

Percentage of Median Family income dedicated to Home Property Tax in 2006 = 9,83%

However, this increase is only valid for new buyers in this market. The Save our Homes Tax break
unfairly burdens new buyers, vacation-home owners and investors, and protects Old Homestead Owners with the limitation to 3% yearly increase in their property taxes.

Fact: Even though Median Home Values have increased proportionally more than double the Median Family Income, and substantially increased the tax base, Counties and Cities, as beneficiaries of property taxes, have found their way to increase their mileage (or tax rate), further aggravating the cost of owning a property in Florida.

Do we fully understand the message that these irrefutable facts are sending to all parties?

To old homeowners in Florida: Do not ever, ever move from your house or condo. You will be punished by an unsustainable raise in property taxes, even if you downgrade to a smaller and more affordable home.
Do not try to add space, build or remodel. Every added square foot will be taxed at the full market value, because it would not be covered by the Save Our Homes exemption. You would be surprised by how much it could raise your tax bill.

To Owners of second homes or vacation homes in Florida: Congratulations, your equity has tripled in the last 10 years. Now, take your money and run. From now on, you are being hit with taxes three or four times higher then 10 years ago; while you are not taking advantage of schools and other infrastructure designed for permanent residents, you are paying the highest bills. Conclusion: Sell

To Investors who have held their property for more than 5 to 10 years. Congratulations; time to take your profits and find a better investment. Your tax expenses are 3 or 4 times what they were when you bought the property. You have tried to raise the rents you collect to cover your rising costs, but you have not been able to keep up to tax and maintenance fees increases. The fact is that renters cannot afford to pay a rent that would make sense for your investment.

To Investors who bought recently. Good luck. You have paid the high price. Your property taxes are high and relentlessly increasing. Your rents barely cover your taxes, maintenance fees and a tiny part of your monthly mortgage payments. The message: Cut your losses, sell and run… But this is the sticky situation of thousands of other “lucky” investors. As a last recourse, just try to rent it, take a monthly loss and hope for the best.

To New Homebuyers. Good luck. You are paying the highest prices. You are paying the highest property taxes. Your expectations of a quick valuation of your new home will have to wait for better times. Meanwhile, just clench your teeth, take the hit and hold on.

To Renters. You are already experiencing a strong pressure on rent prices and it will persist for some time. Your American dream of homeownership is being crushed and is almost unattainable now, but what you are paying in rent is almost a bargain. But expect progressive and unavoidable raises.

And the message that Florida residents are increasingly sending:

To Local Governments: You have been running wild with our dollars. You are fat and rich but you would not give up; you keep wasting our money and you keep increasing our taxes, and today you are the only beneficiaries of the real estate mayhem that is threatening our state. What about some legislature-mandated spending limits?

Correcting the problem:

Whoever is now a beneficiary of the Save our Homes taxation should not tolerate any intent to take away this privilege. After all, 3% cumulative annual increase (as allowed by the Save our Homes rules) is more than fair.

Cost of living has not on average increased more than this percentage during the last 10 or 15 years. So, why accept to be taxed on hypothetical sales value of your homes by greedy local government? We all know that county and city services have not improved in any way to justify three and four times larger tax bills. Therefore, their expenses should have increased at the same rate as the national inflation rate. Unless they have chosen to mask their inefficiency at taxpayers’ expense.

To the contrary, we can even argue that the mushrooming new constructions have already increased their tax base in such a way that the common homeowner should have expected a reduction in tax rates.
Legislators should better consider new regulation to transfer these Save our Homes advantages, when homestead owners switch properties of the same of lesser values. This would surely reactivate the real estate market.

There is no doubt that the present level of property taxes should face a serious examination in order to place them back at their historical levels, as a reasonable proportion of median family incomes, as opposed to their now almost confiscatory levels. I am talking about reduction of tax bills.

The present real estate recession is not due to circumstantial or accidental factors. There are deep economical reasons which can and should be corrected. Affordability of homes is part of our government responsibility and should be addressed accordingly.
Unfair and abusive property taxes are one known issue and voters should put pressure on their representatives to correct it.

We are not talking about tentative and timid measures. I have heard of a motion to increase the Homestead exemption from $ 25,000 to $50,000. This will not solve anything. It would just be a symbolic and political step.

Why about a real study of the impact that 25 years of inflation have done to nullify the economical and social effect of this exemption? Shouldn’t we roll it back to be the same proportion of basic home values as was in its original intent?
Wouldn’t a $ 100,000 exemption be closer to reality? Wouldn’t that help the first time home buyer achieve the American dream? Wouldn’t that be a real injection of reality to our real estate market and our economy in general?

Affordable housing for Floridians is an urgent necessity. No doubt that million-dollars homes and condos have contributed to our economy, but will there be any economy left when working people start leaving the state because of unsustainable home values?

The “save our homes” laws have somehow protected a portion of our homeowners. However, they are an incomplete and unfair arrangement. A complete revision to maintain this protection and also protect new homebuyers, vacation home buyers and investors against abusive property tax increase would be welcome.

Of course, the property tax issue is not the only element in home affordability. Interests and financing costs, inflation, salaries, cost of building, land values, are also determinant factors.

But property taxes are a cumulative burden on the homeowner and they will haunt him year after year. It is time for local governments and our legislators to address this issue that is vital for the survival of our battered middle class.

Disclaimer: This article represents the personal opinions of the writer and are not related to any firm, association or business with which this writer maintains any kind of relationship.

Every homeowner has a responsibility to pay property taxes. They are based upon the assessed value of your home, not its appraised value. Assessed and appraised values are two different things. The appraised value of your home represents the price you might get if you put your home up for sale in today’s market. The assessed value of your home represents its value as applicable to taxation.

Most states use mils to measure the property tax. A mil is equal to $1 for every $1000 when comparing a home’s assessed value to its appraised value. Therefore, if you own a house worth $100,000 and your property is taxed at 3.5 mils, you owe $3.50 for every $1000 of value in your home. By this equation, your property tax would be $350. Some mortgage lenders escrow for these taxes on a per month basis. If you are not escrowing yours through a lender, your local government will bill you quarterly for your assessed property tax.

There is a property tax relief available to veterans in most areas. Not all municipalities participate in this relief. You would have to contact your local municipality to determine if such relief is available for veterans where you reside.

Property tax relief can be obtained in many ways, such as exemptions, frozen assessment rates, abatement, refunds, or direct rebates on property tax. New York has several different types of property tax relief available for veterans. A veteran in South Carolina will get an exemption against the first $50,000 of their home’s assessment value. A disabled vet in Maryland receives total exemption from paying any property taxes.

So, if you are a veteran seeking relief on property taxes you should contact your state, your municipality and your local veteran’s group to find out if you might qualify for property tax relief on your home.

The unending creativity of different groups trying to find a solution for the Property Taxes problem in Florida is starting to overwhelm and confuse most of us. Let’s try to understand:

A) First we had the Florida Legislature rolling back property taxes (to their 2006 level!). However they left the door open for cities to override the rollback by a two third majority vote, which was actually done by a few of them.
Then they put on the January 2008 ballot a package of tax relief which included raising the homestead exemption to 75% of the first $ 200,000 of property value, then 15% on the next$ 300,000. Beneficiaries of “save our homes” would lose that benefit if they opted for the homestead exemption increase. We called that “the poison pill”.

B) On October 29, after a judge had thrown out the ballot package, due to its confusing language, and weeks of indecision, the Legislature finally approved a new ballot proposal which consists of:

- Increasing the homestead exemption by $ 25,000, not applicable to school taxes, which would reduce it to a total of $ 40,000 approximately, instead of the present $25,000 exemption? The savings would amount to an average of $ 220 per year said the legislature.

- Establishing the ‘portability’ of the ’save our homes’ protection, up to $ 500,000

- Putting a cap of 10% on yearly increases of assessed value of non homestead and commercial properties.
We called this proposal: the ‘drop like a pebble’.

C) At the end of November 2007, a coalition of different groups was starting to collect the 611,000 signatures needed to put a new tax reform project on November 2008 ballot.
The new proposal consists mainly of imposing a property tax limit of 1.35% per year on the taxable value of on all properties, including non-homestead and commercial real estate.
It would keep the ’save our home’ protection. The sponsors claimed that it would reduce the average tax bill by 26%.
In this proposal, no mention of ‘portability’ of the ’save our homes’. No protection against violent raises of property value like those who hit us between 2000 and 2005.
The sponsors called it: ‘cut property taxes now’ and any owner can add his signature on their website.

D) A new initiative is pending review from the Taxation and Budget Reform Commission.
It would eliminate all Florida school taxes and replace them by expanding the Florida sales taxes to include services.

The background of all these proposals is the general opposition of public employees, and local governments to anything that would have any meaningful impact on their spending.
They are actively campaigning with their eternal threats of crippling education and schools, cutting back on police department, ambulances, and fire departments.

I am not impressed. And I will not buy into their menaces. Florida budget has bubbled to levels we wouldn’t have dreamed about a few years ago. At the same time property tax collections have doubled during the last five years, from about 16 billion to more than 30 billion. So what are these complaints all about when we try to roll back a couple of billions for the sake of our state and our people’s economy?

It’s about the ever-increasing public sector, with its dozens of cities, bureaucracies, police and fire departments, mayors and commissioners, which is a luxury that we can’t afford when our education is at the bottom level in the US, our public health problems have not been seriously addressed, and so many people are in the danger of loosing their homes on the wake of sky-high taxes, insurance premiums and mortgages.

One of the main issues that worry them are the retirement pensions of this new-formed social class. These pensions are steadily guzzling their budgets and there are starting to feel the fear of loosing these benefits that are negated to many Floridians.
We will always affirm workers’ right to secure their retirement. How could we negate the importance of good police and fire departments? But everything must be done within the reasonable and the possible.

That is the reason why we should address the problem in its deep root. Uncontrolled spending must be stopped and rolled back. Efficiency must be the rule and not the exception. And our local government, as well as our State government must abide by the same belt-tightening measures that it has forced onto a majority of our population.

One of the first steps, in my modest opinion, is the regrouping of city services, and the undoing of this hundred-head bureaucracy that we don’t need.

The exercise of swapping and juggling with tax revenues is proving to be a vain purpose. We have to modify our Tax Property system to make it more equitable; encouraging first time buyers, investors and out-of-state buyers, instead of chasing them away. This won’t be accomplished without reducing our government expenses to acceptable levels.

We definitely need a reform. We do not need a temporary patch. A big part of Florida’s future depends on what is done now. All parties should agree on this basic fact and work to reach a real solution.