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, thinking it’s a good deal because it’s cheap compared to the zonal value… which is often wrong. Let me illustrate…
The problem with BIR zonal values
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.
I’m 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…
The real purpose of zonal values
Okay, this may shock you, but keep in mind that:
BIR 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.
A better way to determine market value…
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).
Let me reiterate BIR zonal values to determine a property’s market value… they are not the same!
Where to get BIR zonal values
Now that you know that zonal values are meant for taxation purposes, here’s the link to the BIR zonal values in BIR’s official website:
Will zonal values become accurate?
In the future, it’s possible that zonal values might become accurate enough to serve as a good enough reference for actual market values…
But we don’t have a crystal ball that can predict when this will happen, or if this will even happen at all.
You have to be very observant and see if the the market values in your target location are moving closer to the zonal values.
You also have to be vigilant if/when the BIR has plans to adjust zonal values in your location.
Personally, I noticed that the zonal values in my target locations are still significantly below the market values we have observed (Las Pinas, Antipolo, Marikina, and Quezon City). How about you? Let me know in the comments.