Understanding the First & Eighth Criteria (or Must the Property Appraiser Always Deduct 15%)?


Florida property is required to be assessed at 100% of just value, which has been deemed equivalent to fair market value.  So why do the Property Appraisers sometimes deduct 15% for the “first and eighth”?  And does the Department of Revenue’s new bulletin require 15% to be deducted from the values of all property?  This post will briefly explain the first and eighth criteria of section 193.011, Fla. Stat., when those factors apply, what “costs of sale” may be deducted, and why a 15% deduction is commonly used.

What are the “first and eighth factors”?

The phrase “the first and eighth” refers to subsections (1) and (8) of Fla. Stat. 193.011.  Fla. Stat. 193.011 sets forth the eight factors that must be properly considered by the Property Appraiser in assessing property for tax purposes.  Subsection (1) requires the Property Appraiser to consider “the present cash value of the property, which is the amount a willing purchaser would pay a willing seller, exclusive of reasonable fees and costs of purchase, in cash or the immediate equivalent thereof in a transaction at arm’s length.”  The relevant portion of subsection (8) requires the Property Appraiser to consider “the net proceeds of the sale of the property, as received by the seller, after deduction of all of the usual and reasonable fees and costs of the sale, including the costs and expenses of financing, and allowance for unconventional or atypical terms of financing arrangements.”  Although these subsections contemplate consideration of a variety of information, the phrase “first and eighth” generally refers to the requirement that the Property Appraiser consider the costs of purchase and the costs of sale.”  In Turner v. Tokai Financial Services, the court explained that while subsection (1) contemplates the transaction from the buyer’s perspective and excludes fees and costs incurred by the buyer in addition to the purchase price, subsection (8) excludes the reasonable fees and costs that the seller would pay out of the proceeds received from the buyer.

Do the first and eighth criteria apply to both real and personal property?

Although some of the factors of section 193.011 are undoubtedly more relevant to appraisals of real property, the Tokai court held that, despite some legislative history to the contrary, because Fla. Stat. 193.011  is not expressly limited to real property, it should be interpreted as applying to both real and personal property.

What “costs of sale” should be deducted?

For real property, the Supreme Court of Florida has construed the phrase “reasonable fees and costs of sale” to include only those fees and costs typically associated with the closing of a sale of real property, such as reasonable attorney’s fees, broker’s commissions, appraisal fees, documentary stamp costs, survey costs and title insurance costs.  Determinining the costs of sale of tangible personal property can be a bit more challenging.  In Tokai, the court adopted the taxpayer’s market approach value for its used equipment, but rejected the taxpayer’s request for a 20% cost of sale deduction for sales commissions, advertising, warranties, delivery, installation and product demonstration, finding that such expenses were internal expenses, rather than external “costs of sale.”  For tangible property assessed by the cost approach, the Supreme Court later held in the Walmart case that sales tax should not be deducted as a cost of sale, because it is a generally accepted appraisal practice to include acquisition costs such as sales tax, freight and installation in the original cost when performing a cost approach valuation.

Does the “costs of sale” adjustment apply to values determined by the cost approach and income approach?

This, of course, is the hot question of the day.  Years ago, the court held in Bystrom v. Equitable Life Assur. Society that a costs of sale adjustment to a value arrived at by the income approach was improper because subsection (8) could only be applied if there had been an actual sale of the property.  Fast forward to January 2011, when the Florida Department of Revenue issued PTO Bulletin 11-01 , advising all county value adjustment boards that they may make cost of sale adjustments to values determined by any of the three traditional approaches (cost, income, or sales comparison).  This came on the heels of the DOR issuing VAB training materials that indicated that the eighth factor should result in a value less than fair market value. 

Many Property Appraisers take issue with the DOR’s interpretation and contend that it contravenes established Florida law.  Hillsborough County Property Appraiser Rob Turner has filed a challenge to the DOR’s VAB training materials, asking that they be deemed invalid.  The Clay County Property Appraiser and the Florida Association of Property Appraisers have joined in that action.  A separate rule challenge was also recently filed by the Property Appraisers of Alachua, Monroe and Okaloosa counties.   Also, the DOR’s bulletin, even if accepted and followed by the Property Appraisers, is carefully phrased to only require the VABs to make an eighth criterion adjustment “when justified by sufficiently relevant and credible evidence.”  Thus, absent a directive from the courts, it is doubtful that taxpayers will suddenly see lower assessments as a result of this bulletin, although it may provide them with an additional argument to be raised in VAB hearings.

Is the “cost of sale” adjustment always 15%?

Under the law, the Property Appraisers are only required to make such adjustments as are justified by the facts, and those adjustments may be higher or lower than 15%.  In the past, some county property appraisers were called out by the courts for unfairly assessing property at a level of assessment that was less than 100% of just value.  Thus, in reviewing each county’s tax roll, the DOR conducts sales ratio studies to ensure that the county property appraisers are sincerely attempting to reflect the full fair market value of the property in their jurisdiction.  In conducting those studies, the DOR generally assumes a 15% adjustment for costs of sale and uses those adjusted values to evaluate the fairness of the county’s tax roll.  Also, every year the Property Appraisers must submit Form DR-493 to the DOR to notify the DOR of the “costs of sale” adjustments made to each type of property in their county, and Rule 12D-8.002(4) requires them to submit documents justifying any adjustments in excess of 15%.

The confusion tends to arise because the certifications made by the Property Appraiser relate to the adjustments made in their mass appraisal process.  Thus, while a Property Appraiser may certify that they made a 15% adjustment during the mass appraisal process, if a taxpayer challenges their assessment, the Property Appraiser may prepare a fee appraisal using all three approaches to value, and may or may not make similar adjustments in each approach.  However, while the Property Appraisers may take issue with the DOR’s bulletin, the bulletin seems to suggest that if a Property Appraiser has certified that they used a 15% adjustment on Form DR-493, the VAB would be justified in making a 15% adjustment to any values that do not affirmatively appear to include such a deduction.  Until the courts weigh in, this will likely continue to be a hotly contested issue before the VABs and the courts.

Frequently Asked Questions About Property Tax Bills


With TRIM notices being issued around Florida in the coming weeks, this post will attempt to answer three of the most commonly-asked questions about property tax bills:  (1) Why is my property assessed at a higher value than my neighbors’ similar property?  (2) Why is my assessed value higher than the price I paid for the property?  (3) Sales prices are going down, so why is my assessment going up?

Why is my property assessed at a higher value than my neighbors’ similar property?  The reason the property tax system was historically considered to be a fair system of taxation was that everyone was assessed based on the fair market value of their property, and that was that.  In the last few years, however, the number of exemptions, special classifications and assessment caps has exploded, thus resulting in similar properties within the same neighborhood being taxed at vastly different rates, depending on when the property was purchased, whether the purchaser was a first-time home buyer, whether the property has a homestead exemption and whether the owner “ported” their cap from another property.

The short answer is that, while the assessed values may differ for a variety of reasons, if the properties are truly similar, the just value should reflect that similarity.  If the just values are substantially different, it is most likely due to differences in the size or configuration of the lot, the age of the improvements, or the overall quality of the construction.  However, if you feel that a mistake has been made, you should contact the Property Appraiser.

Why is my assessed value higher than the price I paid for the property?  The just value of your property is determined as of January 1st of the tax year in question.  While the Property Appraiser is statutorily required to consider the price paid for your property, he can disregard that factor if it is not relevant, i.e. if the sale occurred too long ago or it was not an arms-length transaction, for example.  In most cases, the assessed value is influenced the most by sales of similar property in the area during the last calendar year.

As an example, if you paid $100,000 for your property in January 2005, but similar properties were selling for closer to $200,000 in the last few months of 2008, your 2o09 assessment will likely be higher than what you paid for the property.

If I re-finance my property or take out a line of credit, will my assessment increase?  Probably not.  The Property Appraisers generally base their determinations on actual consummated sale transactions between willing buyers and willing sellers.

Sales prices are going down, so why is my assessed value going up?  Two issues are at play here.  First, the Property Appraiser is required to assess all property at its value as of January 1st, and must submit his or her completed tax roll to the Department of Revenue by July 1st.  Thus, the Property Appraisers tend to rely more on sales that occurred during the previous calendar year, and possibly sales from the first couple months of the current year.  Thus, if sales begin to decline in the spring or summer, that decrease probably will not be recognized until the following tax year.

The other possible reason is the “re-capture” provision of the Save Our Homes Amendment.  If you have had a homestead exemption on your property for many years, chances are your assessed value (on which taxes are determined) has been much lower than the fair market value of your property.  This is because, by law, the assessment of homestead property cannot increase more than 3% per year (or the percent change in the CPI).  However, if your assessment is lower than the fair market value of your property, the assessment will increase by that 3% each year until it matches the just value.  So, even if the just value of your property decreased, as long as your assessed value was lower, that assessed value will continue increasing by 3% per  year or the CPI, until it equals the just value.

How Does the Property Appraiser Determine the Value of Your Property?


  The Florida Constitution requires the county Property Appraisers to assess all property at its just value, which has been defined as “fair market value.”  The purpose of this post is to explain, in a nutshell, how the Property Appraisers determine the just value of residential, commercial and tangible personal property in their jurisdictions.

First, it is important to note that the Property Appraiser must consider eight statutory factors, such as the present cash value, the highest and best use and current use of the property, location, quantity or size, the cost of the property and improvements, the condition of the property, the income from the property, if any, and the net proceeds from the sale of the property.

Residential PropertyIn most counties, residential property is assessed by a computer-assisted mass appraisal [“CAMA”] system.  The Property Appraisers’ staff gathers market data and inputs it into the CAMA system, which produces values based on recent sales and construction costs.  The values for each neighborhood may be reviewed by the staff and compared to recent sales to verify the accuracy of the assessments.

Commercial Property.  Values for commercial property may be calculated in a variety of ways.  Income-producing property, such as hotels, apartment complexes and office buildings, may be assessed by the income approach, which utilizes rental and sales data from similar properties.  The sales comparison approach may also be used for commercial properties that are of a type that is commonly bought and sold.  Unusual or special-purpose properties may be assessed by the cost approach, which adds the depreciated cost of the improvements to the land value to produce an total assessed value.

Tangible Personal Property.  Tangible personal property is self-reporting, and thus the Property Appraisers rely heavily on taxpayers to accurately report the quantity, age and condition of their personal property.  If deemed accurate, costs reported by the taxpayer are usually depreciated according to economic life tables and depreciation schedules published by the Florida Department of Revenue, or developed by the local Property Appraiser based on local market data.

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