Sales incentives add value to property, fuel tax debate

Real estate slump triggers big enticements.

By ALEX LEARY, Times Staff Writer
Published July 31, 2007

TALLAHASSEE -- In Tampa, condo builders will pay for a semester at the University of South Florida. In Pensacola, home sellers offer plasma TVs, golf carts, pools and plane tickets.

Florida's real estate slump has led to some extraordinary enticements, which add up to great news for buyers.

But these oddities are causing headaches in Tallahassee and a debate over how they may be artificially increasing property taxes at a time when taxes are supposed to be going down.

The problem is the value of these incentives is added to the sales price recorded in county records.

And because the government calculates property taxes based on those very county records, those incentives can have a notable impact.

It's no big deal when you're talking about improving a house's value with a free kitchen upgrade or a new pool. But should the taxable value really be higher because the seller gave the buyer a car? Or a Caribbean cruise?

Today, the issue comes to a head as two Panhandle property appraisers sit down with the Department of Revenue to make their case that all those deals are masking the true value of a home.

They say the sweeteners are so prevalent and expensive that the overall value of all property -- a master list called the tax roll -- should be 5 percent lower. That tax roll is used to set the millage rate.

"It's a valid argument," said Tim Wilmath, director of valuation for the Hillsborough County property appraiser.

If they lose it, the state will force those Panhandle counties to increase property taxes, at least for some homeowners. That's the argument of one of the two appraisers.

"People would be paying taxes on inflated values," said Escambia County Property Appraiser Chris Jones. "And I'm not willing to let that happen."

The state counters that if the overall tax roll is lower, homestead property owners would actually see less tax savings due to a quirk of Save Our Homes that says when the values of homesteads go down, tax assessments can still increase by up to 3 percent.

Deals to sell homes

Until recently, sales incentives were mainly offered by home and condo builders. They did not want to lower the overall sales price for fear of offending people who bought identical homes months earlier, so upgraded kitchens, pools and golf carts were thrown in.

"Anything to make a house stand out," said Craig Beggins, president of Century 21 Beggins Enterprises in Apollo Beach.

The deals include not only pools and the occasional free car but "decorator allowances" for expensive draperies and other fixtures.

So far, experts and property appraisers across the bay area say the incentives are not widespread enough to have lowered overall values. "One here and there is going to have no effect whatsoever on the market," said Pasco County Property Appraiser Mike Wells.

Although builders have been reluctant to drop sales prices, that is primarily what is happening in the Tampa Bay area market.

"Some of these guys were making huge profits on new homes," Wells said. "Well, when that door slammed, so did the huge profits. They've had to reduce prices to where the market is."

Two counties balk

Escambia and Santa Rosa counties, however, say a survey of single family home sales showed enough incentives to catch their attention. The state questions how scientific the study was.

Greg Brown, the Santa Rosa property appraiser, said people were telling him about the softening market but it was not apparent at first because sales prices remained steady. But in reviewing the deals, he noticed an abundance of incentives.

The glut of housing was itself an oddity. When hurricanes Ivan and Dennis socked Escambia and Santa Rosa in 2004 and 2005, it created a vast shortage of housing that ran up prices dramatically.

But the deficit turned into a glut as people moved out of temporary dwellings and back into their repaired homes.

Today, there are more than 7,000 homes for sale in the two counties, compared with pre-hurricane level of 1,200.

As a rule, the tax roll that property appraisers submit to the state is about 15 percent below the total sales record that shows up in county books. This is to account for closing costs, sales commissions and other costs.

But when Jones and Brown submitted their tax rolls to the state in June, they decided to take off 20 percent of value because of all the sales incentives they saw. The Department of Revenue sent the tax rolls back.

"I just don't think the evidence was there," said Lisa Echeverri, the department's deputy executive director.

"We all know the market has changed in the last several months but we're not seeing any kind of dramatic change elsewhere."

While their job is not to set tax rates, Jones and Brown argue that a higher tax roll will lead to more property taxes for many property owners in Escambia and Santa Rosa counties.

But a smaller tax roll may not be the answer either.

A lower tax roll would simply mean Escambia and Santa Rosa would need a higher millage rate to bring in the allowable revenue under mandated tax cuts.

While commercial and non-homestead property owners would get a break with lower values, homesteaders would absorb more of the tax burden.

For that, they can thank a little-noticed rule under Save Our Homes that directs property appraisers to raise the assessed value of these homes up to the cap limit -- currently 2.5 percent -- even if in a particular year, the home's value stayed the same or declined.

Despite the tension, Department of Revenue executive director Jim Zingale said the agency will sit down today with Jones and hear him out. "We're trying to learn every single thing that we can about what he has found."