Florida Property Taxes When Buying a Home: Don’t Let the Seller’s Old Tax Bill Fool You

One of the most expensive mistakes you can make when buying a home in Tampa Bay or anywhere in Florida is assuming the property taxes shown in the MLS or on the current owner’s tax record will be your property taxes after closing.  They may not even be close. I’ve been selling Tampa Bay real estate since 1991, and this is one of those details that an experienced Realtor learns to watch very carefully. Whether you’re buying new construction in Tampa, a resale home or a property anywhere in Florida, failing to anticipate a property tax reassessment can turn what appeared to be an affordable monthly payment into a serious financial hardship.

NEW CONSTRUCTION PROPERTY TAXES CAN BE ESPECIALLY MISLEADING
Let’s say you’re buying a newly constructed home and the current property tax record shows taxes of only $300 a year. That sounds fantastic, except you may be looking at a tax bill that reflects primarily the value of the vacant land before the completed house was added to the assessment.  Florida real property is assessed as of January 1, and property tax bills are generally issued later in the year. Depending on when construction was completed and the assessment cycle, the tax record you’re looking at may not yet reflect the value of the completed home.  Once it does, that tiny tax bill can look dramatically different.  For illustration, suppose the eventual property taxes are $10,000 a year. That’s no longer $25 per month for taxes. It’s approximately $833 per month.

THE SAME PROBLEM CAN HAPPEN WHEN BUYING A RESALE HOME IN FLORIDA
Suppose you’re buying a Tampa home from someone who has owned and homesteaded it for many years. The seller’s current property taxes might be $5,000 annually, so you assume your taxes will be about $5,000 too. That can be a very expensive assumption.  Florida’s Save Our Homes assessment limitation can keep the assessed value of a longtime homesteaded property substantially below its current market value. Following a change of ownership, that accumulated assessment limitation can be removed and the property reassessed under Florida law. Your exemptions may also be different from the seller’s.  That $5,000 tax bill could potentially become $8,000, $10,000 or another amount depending on the property’s reassessed value, applicable exemptions, millage rates and other factors.  The seller’s property tax bill is history. It isn’t necessarily your property tax bill.

HOW A PROPERTY TAX ESCROW SHORTAGE CAN DESTROY A BUYER’S BUDGET
Let’s use a hypothetical buyer with a $500,000, 30-year mortgage at 7% interest.  Principal and interest: approximately $3,327 per month. Homeowners insurance at $4,000 annually: approximately $333 per month. Property taxes showing only $300 annually: $25 per month. The buyer might believe the approximate monthly payment is $3,685, before HOA fees, mortgage insurance or other applicable expenses.  But suppose the property’s eventual tax bill is actually $10,000. The appropriate monthly allowance for property taxes would be approximately $833.  Now the approximate payment becomes $4,493 per month.  That’s an $808 monthly difference from property taxes alone.  But it can get worse.  If the mortgage servicer initially collected too little because the escrow account was based on an artificially low property tax amount, there may not be enough money in escrow when the higher tax bill becomes due. That can create an escrow shortage.  Now the homeowner can get hit from both directions. The monthly escrow has to increase to prepare for the higher property taxes going forward, while the homeowner may also have to repay the previous escrow shortage.  For illustration, suppose that shortage were $9,700 and it was recovered over 12 months. That would be approximately another $808 per month during that period.  Our hypothetical buyer could temporarily go from expecting a payment of approximately $3,685 per month to approximately $5,301 per month.  That’s approximately $1,616 MORE EVERY MONTH than the buyer originally budgeted for.  For a family purchasing near the top of its comfortable monthly budget, that isn’t a minor inconvenience.  That can be catastrophic.

HOW TAMPA BAY HOMEBUYERS CAN HELP AVOID THIS PROBLEM
Don’t blindly use the previous owner’s property tax bill when determining whether you can afford a home. And when buying new construction in Florida, don’t assume a small tax bill based primarily on vacant land will represent the taxes on the completed home.  Instead, estimate the future property taxes based on the home you are actually buying and the price you are paying for it.  For buyers in Hillsborough County, the Hillsborough County Property Appraiser provides an online property tax estimator. It’s still an estimate because assessments, exemptions, millage rates and other factors can affect the final tax bill, but it can give you a much more realistic picture than simply relying on the seller’s existing taxes.  Then talk with your lender and Realtor and make sure the escrow amount being established reflects a realistic estimate of your future property taxes, not simply the tax bill belonging to the previous owner.

WHY EXPERIENCE MATTERS WHEN BUYING A HOME IN TAMPA
There are some outstanding new Realtors in this business, and everybody has to start somewhere. But this is exactly why an inexperienced real estate agent should have an experienced mentor or broker looking over their shoulder.  A Realtor’s job isn’t simply to unlock a door and write an offer.  Sometimes the most valuable thing an experienced Realtor can do is recognize a potential financial landmine before the buyer steps on it.  Finding out months after closing that your mortgage payment is suddenly hundreds or potentially more than a thousand dollars higher is not the time to learn how Florida property taxes, reassessments and escrow accounts work.  Know the numbers before you buy the house. Your future budget may depend on it.

Vincent Arcuri, Real Broker, LLC. Tampa Bay Realtor Since 1991