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…
They are not an accurate basis in determining a property’s market value.
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 always use the real market value in determining if a property is a bargain or not. In other words, you cannot rely on zonal values.
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), 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 to compute for the real estate taxes, that you, either as a buyer or a seller, will pay, when you buy or sell a property. This applies to all properties, foreclosed or otherwise, or even as you own a property in the form of real property taxes (RPT).
In parting, let me just say it one last time. Do not use BIR zonal values to determine a property’s market value… they are not the same!
To our financial freedom!
Real Estate Investor
Real Estate Broker License #: 20056
Follow me in Twitter: http://twitter.com/jay_castillo
Find us in Facebook: Foreclosure Investing Philippines facebook page
Text by Jay Castillo and Cherry Castillo. Copyright © 2011 All rights reserved.
PS. Don’t be the last to know, subscribe to e-mail alerts and get notified of new listings of bank foreclosed properties, public auction schedules, and real estate investing tips. Mailbox getting full? Subscribe through my RSS Feed instead!