KEY COSTS IN TRANSFERRING PROPERTY OWNERSHIP (SALES)

Happy to share that Q4 2022 had a great start for me (Thank God!! ??); this time I had the opportunity to represent a Buyer in a condominium resale (i.e. secondary market) transaction, which closed last month.

However, despite the peaking excitement while deeds are signed and payments are made, my job as a Buyer’s Broker is truly “done” only after the Buyer is reflected as the owner of the purchased property (unless the Buyer opts to use another title transfer service provider of course).

Allow me to present the KEY COSTS OF TRANSFERRING A PROPERTY’S OWNERSHIP via sales.

For those of you catching this article in a rush, feel free to skip to my summary for “standard sales transactions” at the end of this article; for everyone else, I invite you to read on for a deeper understanding, and some tips/best practices:

1.?????Notarization of Deed of Absolute Sale

During the turnover of a property (including ownership documents and all other requirements) to the buyer, seller’s receipt of full payment, and signing of the deed of absolute sale (DOAS), it is typically best practice to have a notary public present, and for the DOAS to be notarized as soon as possible.

From a practical standpoint, all agencies you will deal with for the title transfer process will require a notarized DOAS, however, the purpose of notarization is to have a lawyer/notary public witness the contract signing between verified identities, as an added layer of protection for all parties and deterrent to fraud.

In addition to this, the notarization date becomes the formal date of the transaction, which becomes the starting point for any tax deadline, and serves as protection for all parties from unforeseen changes, such as an increase in zonal values which could impact tax liabilities (I’ll cover this more in a future article).

The cost of notarization varies so it would be best for you to secure your own quotations from verified notary publics. For benchmarking purposes, I have experienced notaries charging as high as a percentage of contract sales value to as low as P1,000 per million over the past few years.

Lastly, we suggest to notarize seven (7) originally signed copies of the DOAS (full signatures on all pages by all parties involved), some of which will be kept by the agencies involved in the title transfer process.

2.?????Settlement of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST)

The next step (and the biggest cost component in transferring titles) is the settlement of CGT and DST to BIR. Simply put, CGT is 6% and DST is P15 for every P1,000 of a property’s contract selling price rounded up* (as reflected on the DOAS), and as far as BIR is concerned, CGT is shouldered by the seller, whereas DST is shouldered by the Buyer (this is why the Seller’s TIN number is reflected in CGT payments, whereas Buyer’s TIN is reflected for DST).

CGT and DST must be paid via Manager’s Checks payable to the “[Authorized Agent Bank] FAO BUREAU OF INTERNAL REVENUE IFO [Seller’s Full Name and TIN Number]” for CGT, and “[Authorized Agent Bank] FAO BUREAU OF INTERNAL REVENUE IFO [Buyer’s Full Name and TIN Number]” for DST.

(FYI: FAO stands “For Account Of;” IFO means “In Favor Of”).

CGT is due within 30 days from the contract’s notarization date, whereas DST is due on the 5th of the month after the contract’s notarization; regardless, and as a best practice, we highly recommend for the CGT and DST Manager’s Checks to be ready and presented at the time of closing for the assurance of all parties that said taxes are funded and will be credited to the correct parties simultaneously.

After CGT and DST are settled, BIR will stamp your Notarized DOAS, and a Certificate Authorizing Registration (CAR or eCAR) will be issued, which is another requirement for succeeding steps in the title transfer process.

*Key Exceptions/Tips to remember:

a) Make sure to check the Zonal Value of the property being sold in advance (you can find this at https://www.bir.gov.ph/index.php/zonal-values.html and verifying with the relevant BIR RDO). CGT and DST will be applied on the higher value between Zonal Value and Contract Selling Price as of the date of contract notarization.

b) Make sure to do a TIN verification on the seller before making major payments to find out if the seller would need to pay VAT or not. To simplify things, if BIR classifies a seller as someone who is engaged in Real Estate Business (selling and/or leasing), OR if a seller has already sold 6 properties within the past year, the seller will have to pay 12% VAT on the contract selling price, and 6% Withholding Tax (instead of CGT).

Lastly, you might be wondering about the use of the term “CAPITAL GAINS” in CGT. Admittedly this is a misnomer (by definition, Capital Gains is Selling Price less Acquisition Cost i.e. Gross Profit); regardless, and for whatever reason, BIR in practice applies the 6% CGT on the total contract selling price (which we just have to accept until such time the term is officially updated/corrected ??).

3.?????Settlement of Transfer Taxes

Once you have your CAR/eCAR after paying CGT and DST, the next step would be to settle the Transfer Tax with the City Treasurer, which is due within 60 days from your notarization date. This cost can vary but is normally within 0.5% to 0.75% of a property’s selling price (or Zonal Value, whichever is higher).

Before you can pay the Transfer Tax though, you will need to have a Tax Clearance for the property from BIR. As a best practice, be sure to secure the Seller’s Real Property Tax Receipts for the full calendar year (and Certificates of Management from the property’s association if it belongs to one) during closing. The Seller typically pays for Real Property Tax, unless the parties agree otherwise.

Lastly, Transfer Tax must be paid via Manager’s Check payable to your property’s relevant City Treasurer (call them in advance to ensure you have the correct payee name for your MC) i.e. no need to show TIN numbers or names of the seller and buyer on the check unlike CGT and DST. Once this step is complete, the City Treasurer will also stamp your DOAS.

4.?????Settlement of Registration and IT Fees

The last significant cost component for a property’s ownership to be transferred to its buyer’s name are the Registration and IT Fees which are paid to a property’s relevant city’s Registry of Deeds. This cost can also vary but will normally be within 0.5% to 0.75% of the property’s selling price (or Zonal Value, whichever is higher), also payable via Manager’s Check. No deadline applies for these fees; regardless, this should be done as soon as requirements are complete, for the title to be transferred to the buyer’s name as soon as possible. After this step, the TCT/CCT will be in the buyer’s name.

5.?????Securing the Declaration of Real Property (Tax Dec)

The last part in transferring a property’s ownership is to transfer the Declaration of Real Property to the buyer’s name at the City Assessor’s office. This step will only cost Php100+, after which you are done!

To Summarize:

Hope this article helps you in your future real estate transactions. Again, this serves only as a presentation of costs (which in short is an additional 3%-4% of selling price for buyers for standard sales transactions).

In case you do not want to deal with these kinds details for your transactions, you may also just contact me for assistance in selling/buying properties ??.

Have a great weekend and God bless,

Derek Yazon

DISCLAIMER: The views, opinions, and practical personal experiences shared in this article and site belong to Derek Yazon, and do not necessarily reflect the position of RE/MAX Capital, or any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein??.

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