Closing Cost Of Buying And Selling Property In The Philippines
When buying or selling property it would be prudent to know and understand the costs associated with your property sale or purchase. Be aware that a real estate transaction does not only involve the base price of the property but there are also closing costs that will be incurred to complete the transaction, both on the part of the seller and the buyer.
WHAT ARE THE CLOSING COSTS?
Closing costs are the costs of the property which will be brought about to finish a purchase or offer land exchange. Completion of the real estate transaction compares to the exchange of proprietorship and title to the purchaser of a property.
The final purchase price isn’t and should not exclusively be the significant sum when purchasing and offering land properties in the Philippines.
Both the buyer and seller must be considered the other taxes and fees charged on the transaction because it affect the total transaction price.
WHAT ARE THE CLOSING COSTS AND FEES ASSOCIATED WITH BUYING A PROPERTY?
In the wake of finding the place you had always wanted, it is currently time to present a letter of aim to advise the seller that you are interested on his or her property. More importantly, this is likewise an opportunity to prepared your installment.
Other than the property’s purchase price, there are additionally expenses and assessments that a purchaser need to bear. These incorporate transfer tax and notarial charges, among others. In spite of the fact that this article is only a general manual for enable you to prepare your accounts (surely the aggregate cost of acquiring a home will contrast contingent upon the conditions of the deal), it is as yet valuable at any rate to take out startling shocks later on. To be sure, it is constantly fitting to look for the assistance of experts, for example, authorized agents, bookkeepers, or even a lawyer.
1. Documentary stamps tax
This kind of tax is exacted on archives, instruments, credit understandings, and papers confirming the acknowledgment, task, deal, or exchange of a commitment, right, or property. On account of a sale of a transfer of a real property or a Deed of Absolute Sale, the tax rate is 1.5% or Php15 for each Php1,000 of the property’s offering cost, zonal value, or fair market value, whichever is higher. For instance, if a property’s selling price is Php3 million (and if this sum is higher than the property’s zonal value or fair market value), the documentary stamps tax will be Php45,000.
2. Transfer tax
This is tax imposed on any method of transferring the responsibility for real property, either through sale, donation, barter, or some other mode. Again, whichever is higher, this varies to a low of 0.5% to a high of 0.75% of the zonal value of selling price of the property depending on the municipality where the property is situated. The purchaser should consult with the City or Municipal Treasurer of the local government unit where the property is situated to decide the exact amount.
3. Registration fee
This expense is paid for the registration of a deed of sale, conveyance, transfer, exchange,partition, donation or real property and is paid to the local Registry of Deeds or Land Registration Authority where the property is situated.
To make calculation basic, let’s use Php1.7 million as the property’s selling price, an amount that brings about a registration fee of Php8,796. In any case, if the property’s selling price overreach to Php1.7 million—for instance, Php2 million—the purchaser will add Php90 for each Php20,000 in excess of Php1.7 million. Consequently, the Registration Fee for a property worth Php2 million will be Php10,146.
4. Notarial fee
The Deed of Absolute Sale should be also legally approved, which requires a fee of around 1% to 1.5% of the property’s selling price, yet no lower than Php1,000 as a legitimate instrument or document evidencing a sale.
5. Loan fees
Lastly, if the purchaser applies for a housing loan, there are additional costs fixing to it, such as appraisal fee, handling fee, mortgage redemption insurance, and fire insurance. This relies upon the bank or moneylender, so make sure to look around that offers the best rate.
When purchasing a real estate property in the Philippines, it is important to remember, particularly for first-time home purchasers, that it’s not only the upfront costs (reservation expense, initial installment, and so on.) you should prepare for. There are likewise the closing costs that you should pay after you’ve at last acquired your new home. Realizing what final expenses come with purchasing a property will give you an opportunity to completely set up your finances.
This is the standard sharing of expenses between the buyer and the seller when transferring the real estate property title (TCT – Transfer Certificate of Title or CCT – Condominium Certificate of Title) to a new owner. You must know that buying or selling a property has a closing cost associated over and above the cost of the property. It may vary from case to case but in general, here are some guidelines on the different closing costs that will be incurred in a typical real estate buy and sell transaction in the Philippines.
Closing Cost Account of the Property Seller
-Capital Gains Tax. This is a fee on the gains the property seller should realized at least 6% on the gross selling price, depends on the market zonal value whichever is higher.
-Unpaid real estate taxes due (if any).
Real Estate Broker’s Commission
-Brokers commission based on the agreement between property seller and broker and is computed as a percentage of the total selling price.
Closing Cost Account of the Property Buyer
-Transfer Tax. This tax is to be paid to the city or municipal treasurer of the city or municipality where the property is located for the transfer of ownership from seller to buyer. Ranges from 0.5% to 0.75% of the selling price vary per city or municipality, fair market value or zonal value whichever is higher.
Documentary Stamp Tax
-Bureu of Internal Revenue (BIR) defines documentary stamp tax as tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property. Tax rate is 1.5% of the selling price, fair market value or zonal value whichever is higher.
Title Registration Fee
-this fee is paid for the issuance of new title in the name of new owner. This are based on a graduated table of fees which are based on the value of the consideration.
0.25% of the selling price, or zonal value or fair market value, which ever is higher.
Do not forget to include in the above closing costs so that you are able to get the total picture.
STEPS FOR CLOSING A REAL ESTATE SALES/DEALS
Step 1. Find the Right Home
To ensure success from selecting a perfect home, its best to seek help from trustworthy professionals who are well versed in the buying and selling. Anyways, there are factors that will guide you from selecting your house. This factors are up to you to decide, things like cost, location, and the physical appearance of your home. While finding a house, it’s better if you will hire an experienced Realtor. Once you and your Realtor found a good fit, they will draft up an offer to purchase. Look at the Real Property Report and make sure there are no problems with the home. Getting a real estate lawyer involved is also a good idea at this point.
Step 2. Set the Buying Process in Motion
The lawyers will be responsible for holding all money and documents necessary for the transaction, from both buyer and seller to make sure everyone stays honest, money gets handled appropriately, and the purchaser obtains clear title until the entire process is complete. While one lawyer can act for both parties, there is usually not much cost savings for it. Most cases, it’s in their best interest to each have their own independent lawyer to protect their interests.
Step 3. Conduct a Title Search
One of the first things your lawyer do is search title where it yields all records and documents that are pertinent to the property. For the legal documents, the seller and the broker must be able to secure the necessary documents in preparation of the transfer of ownership to the buyer as the latter to fulfill the payment of the property.
Here is a list of documents that the owners or brokers must obtain from the Register of Deeds (you may check with your local ROD if you can avail of the Electronic Land Title) to finalize the transfer of ownership to the new owner:
These documents must be obtained from the Register of Deeds:
• Certified True Copy of Transfer Certificate of Title ( Land )
• Certified True Copy of Condominium Certificate of Title ( Unit )
• Certified True Copy of Condominium ( Parking – if applicable )
The owner or broker must procure these documents from the Assessor’s Office:
• Certified True Copy of Tax Declaration ( Land )
• Certified True Copy of Tax Declaration ( Improvement / Building )
• Certified True Copy of Tax Declaration ( Condominium )
• Certified True Copy of Tax Declaration ( Condominium parking, if applicable )
• Real Estate Tax Clearance for Current Year
• Certificate of Non-Improvement if property is bare and without structures such as a house or a building
The Property Owner should also secure the following documents:
• Certificate Authorizing Registration from the Bureau of Internal Revenue (BIR)
• Original Real Estate Tax Receipts – Current Year
• Lot Plan / Subdivision Plan
The Property Owner must also secure the following:
- Registration from the Bureau of Internal Revenue (BIR)
- Original Real Estate Tax
- Receipts – Current Year Lot Plan / Subdivision Plan
Prepare the Deed of Sale
Once the price is fully paid, a deed of absolute sale will be signed whereby the seller relinquishes or transfers ownership of the property to the buyer. When signed by both parties, the buyer is considered to be the absolute owner of the property. It is important to notarize Deed of Absolute Sale so it will become a public document.
Step 4. Inspect the Home
Home inspections are very important to have done for most real estate transactions. It’s crucial that you hire your own independent home inspector since you don’t want connected to the seller in any way. Anyone who has a vested interest in the sale is a potentially bad choice.
Step 5. Prepare Closing Document
The Real Estate Lawyers will begin to prepare closing documents once contract negotiations have been solidified which will include transfer of land. In particular, make sure the interest rate is correct and that there is no prepayment penalty. Note that you will be required picture identification with your full legal name. The buyer should round up all of the paperwork they’ve collected throughout the home buying process.
Step 6. Give It A Final Once-Over
One of the last steps before you sign your closing papers should be to walk through the property one last time with your Realtor. It is most effective if done within a few days of the finalization. The purpose of this is to confirm that all conditions set in the sales contract have been met and no damage has been done since the initial viewing of the house.
Step 7. Close the Sale
You will meet with your Real Estate to sign your purchase documents and mortgage documents before the purchase closing date. During the appointment, the Lawyer will review all the documents with you and have you sign all the legal papers. Bring in any deposit money or down payment that is required to close the purchase.
On the close date, the Purchaser’s lawyer will send to the Seller’s Lawyer the required money to close the transaction. The Purchaser’s lawyer will then send the documents to Land Titles for registration. Once the Seller has received the money from the Purchaser’s lawyer they call up the Purchaser’s Realtor to release keys. The Realtors of Seller and Purchaser will then make arrangements to meet the Purchaser to give them their keys to their new home.
Step 8. Make Yourself at Home!
This is your most awaited part! You’ve made it through one of the most momentous purchases of your life. Crack that bottle of champagne or drink your favorite coffee to celebrate your success! Feel the moment and relax.