So you have announced to the world that you are now a real estate investor, and suddenly, everyone has a property they want to show to you. This often happens to me, and can also happen to you as follows.
A friends calls and says “Hey Jay, I found a foreclosed property for sale and I know it’s a bargain!”
“Really?! That’s great, may I ask why it’s a bargain?” I answered with great enthusiasm, expecting something like an ugly multi-door property in a nice neighborhood, at a ridiculously low price.
My friend quickly answers “Its selling price is way below its zonal value, it’s just a fraction of it!”
I cringe and I begin to explain in a nice way that zonal values and market values are worlds apart…
This may shock a lot of you…
Paraphrasing what Engineer Enrico Cruz said to our class during one of his lectures; “From this point onwards, we should forget about zonal values when appraising a property!”.
Simply put, If you’ve found a property with a selling price that is below the BIR zonal value for that property’s location, it does not follow that the property is a bargain.
On the other hand, if a property’s selling price is higher than the BIR Zonal value for that property’s location, it also does not follow that it is overpriced.
Sometimes, you may find a property with a market value that is equal to its zonal value, but this is very rare.
Remember this if you are a real estate investor
Here’s what real estate investors should always remember: We should use the real market value in determining if a property is a bargain or not. One fairly accurate way of determining market values is by finding comparable properties or comps. To learn more about this, refer to the article on How I estimate the Market Values of foreclosed properties.
Maybe in the future, if the BIR is able to adjust the zonal values to match current market values (yes, the BIR is revising zonal values now), and if they can do this fast enough (yes, property market values change with time), then maybe we can use it to determine the market value of a property.
The question is, will the revised zonal values be the same as current market values?
Should we totally forget about BIR zonal values?
Of course not! BIR zonal values are still important as you will use them when you compute for the real estate taxes that you either as a buyer or a seller will pay, when you buy or sell a property, foreclosed or otherwise, or even as you own a property in the form of real property taxes.
In parting, let me just say it one last time. Do not use BIR zonal values to determine a property’s market value as they are not the same!
To our financial freedom!
Real Estate Investor
Real Estate Broker License #: 20056
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Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.
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