What You Need To Know About BIR Zonal Values

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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…

BIR zonal valuesBIR Zonal Values are purely for taxation purposes only!

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.

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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).

This is part of due diligence and aims to mitigate just one of the risks of real estate investing, like paying too much for a property by not considering expenses like real estate taxes.

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!

Jay Castillo

Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
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.

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About Jay Castillo

Jay is the founder of Foreclosurephilippines.com where he shares real estate investing tips and foreclosed property listings. He quit his job as an I.T. Manager to focus on Real Estate Investing and Internet Marketing. He is a PRC licensed Real Estate Broker (REB License # 3194)... [Read more]

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  • Rom

    Are the comparable prices readily available in rural areas, specifically farm lands? Where and how to get it?

  • http://www.denr.gov.ph Dino

    May I ask some questions regarding the assess value of 2nd class municipality, how much is the assessed value per square meter the following three (3) querries, to wit:

    1. Warehouse?
    2. Residential dwelling unit? Bare? Without interior finishing?
    3. Commercial building, groundfloor only, and multiple storey building?

    Thanks abd hoping for your favidabke action to my querries.

  • Kei

    Hi Jay! Thank you for your kind instruction. I can understand what zonal valuation means to real transaction. Here is one question however, If there is huge difference between zonal value and real price, let’s say about land which zonal value is P100000 per square meter and seller’s price is P200000 what can I think about this differece? Isn’t it too expensive? I know I should check comparable properties price but some specialist of real property investment said zonal value of BIR can be benchmarks of real transaction. I am little bit confused. I’m so glad if you tell me some advise. Thank you.

    • http://realestatesavingsphils RONALD TUCAY

      Hi Kei! seems Jay is busy so let me answer your question… I think you need not worry much about the difference be it too big for you to imagine because you cannot just do anything but to follow the BIR Zonal, at least for tax payment purposes only. It cannot dictate the real market value of a property. Well, if you are the seller of the property and you sold it twice as much as it’s zonal value then good for you isn’t it? And if you are the buyer in the same situation then just let the seller pay his duty like Capital Gains Tax or you may ask him to include Documentary Expense based on BIR zonal which is cheaper — for your advantage, right? Goodluck to you!

    • Keih

      The most common factor in appraising property is based on zonal values multiplied to three and depending on property conditions eg. flood zone, proximity to access roads, proximity to public transportation, neighbor class, recreation and area development; this will help one to decide whether it is a good price or over priced property.

      An area that has a zonal value of P85,000 per square meter; can sell property at P170,000 or more. If one wants a faster sale then just use price according to zonal value and make an agreement of ‘of net’. ‘Of net’ means the buyer shoulders everything like capital gains tax.

  • http://realestatesavingsphils RONALD TUCAY

    Hi Jay! I’m a regular follower of your very informative blogs. Thank You! pls let me answer Ms Cherilyn’s question?
    –Yes, as per BIR laws, a property to be classified as ‘agricultural’ should atleast be 1000 sq.m., so 999 sq.m is a ‘residential’ as per Tax Declaration which would mean higher tax considerations in favor of the Agency. I strongly oppose it because it is unjustifiable at times but it’s their law. ha! ha! ha! However, the advantage of it being classified as residential is that it can be mortgaged with some government agencies like Pag-ibig, GSIS or Banks, which, in some cases, cannot be done with ‘agricultural’ classifications. Also the mortgage value is higher. thanks!

  • Cherilyn Baltazar

    Hi Mr. Jay Castillo! A friend told me that in order for a property to be considered as an agricultural for its zonal value, it should be more than 1000sq m… Is this true? We have a property which measures 555sq m which includes mango trees and a small piggery and he says it should will be considered as residential by the assessor. Is there a minimum lot area to have it considered as agricultural with regards to its zonal value?

  • http://www.facebook.com/profile.php?id=100003377286444 Ralph Lawrence

    why wont you buy the foreclosed property, isnt it that zonal values are always lower than the market value

    • http://realestatesavingsphils RONALD TUCAY

      Hi Jay! Thanks for your very informative and kind blogs! Pls. let me answer Ralph Lawrence’s question?
      –Most of the time, zonal values are lower than market values but not always, or atleast not a material difference. For example in some Sta lucia Subd. like The Orchard Golf and Country Club in Cavite where the zonal value is 6,000/ sq.m. but the Market value is only between 3-4T/sq.m. Also in some subd. in QC, case is the same. So i guess it’s BIR’s failed assesment that caused it. I noticed that, private properties especially residential lands in old subdivision have lower zonal values far beyond it’s market values. Some reasons of it’s material diferrence are flood, location, size, availability, saleability, etc. thank you!

  • Ilya Jacob

    what are the taxes to be paid aside from cap. gains and doc. stamps if the property sold is inherited from deceased?

  • http://www.foreclosurephilippines.com Jay Castillo

    Hi Robi, the real property tax is the tax due based on the actual use, assessment level, and assessed value, which are written on the tax declaration, aside from the fair market value of the land or the building.

  • robi

    Good day!

    how is real property tax different from tax declaration?