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. In my real estate brokerage practice I have always made it a point to make my clients know and understand these costs to properly guide them in their investment decisions.
What are closing costs? Closing costs are the expenses, over and above the cost of the property, which will be incurred to complete a buy or sell real estate transaction. Completion of the real estate transaction equates to the transfer of ownership and title to the buyer of a property.
What are these closing costs? Although these costs may vary from case to case, following are general guidelines on the different closing costs that will be incurred in a typical real estate buy or sell transaction in the Philippines.
Closing costs for the account of the property seller:
** Capital Gains Tax. This is a levy on the gains that will be realized by the property seller. This is pegged at 6% of the gross selling price, fair market value or the zonal value, whichever is higher.
** Real Estate Broker’s Commission. The broker’s commission rate is based on the agreement between the property seller and broker and is computed as a percentage of the gross selling price.
Closing costs for the account of the property buyer:
** Transfer Tax. This is the tax 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. Rates vary per city or municipality but ranges from 0.5% to 0.75% of the selling price, fair market value or the zonal value whichever is higher.
** Documentary Stamp Tax. The Bureau of Internal Revenue (BIR) defines documentary stamp tax as “a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property”. Tax rate is at 1.5% of the selling price, fair market value or the zonal value whichever is higher.
** Title Registration Fee. This is the fee paid for the issuance of a new title in the name of the new owner. The registration fees are based on a graduated table of fees which are based on the value of the consideration.
If you are deciding whether the property you are eyeing will suit your budget or whether you are trying to peg your asking price for a property you want to sell, do not forget to factor in the above closing costs so that you are able to get the total picture. You can also request your real estate broker to compute these for you.
Caveat: Make sure you engage the services of a licensed real estate broker to ensure that you receive the right advise and are apprised of the correct numbers that you will need to factor in when making your investment decision.
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