Why Property Assessment is Important ?

tax declaration r

IMPORTANCE OF PROPERTY ASSESSMENT :

Here’s another important issue that everyone should be aware of when buying a property with a structure, whether new or old.  Recently a family friend bought a property with an old structure ( actually for major renovation or for demolition already ) in Metro Manila.  Now it’s been a standard procedure for us licensed real estate brokers and buyers to do “due diligence”  on the property and this normally has been to check on the documents which are the Title ( TCT or CCT ), Tax Declaration, Tax Clearance and Certificate Authorizing Registration from the original purchase of the property if applicable.

This particular issue concerns the Assessor’s Office whose responsibility is to inspect and assess the property before issuing a new tax declaration for the new owner.  Upon inspection of the property, it was discovered that there was an added improvement on the property which was not reported to the Assessor’s Office ( take note that real property tax paid is based on the assessed value of the property ).

tax-penalty pr

Reassessment of a property is required any time new construction occurs. Thus, new construction, when not considered normal maintenance or repair, is assessable if it adds value to the property. The market value ( not necessarily the cost ) of the addition or other “new construction” is determined by the assessor and added to the existing property assessment. The value of the existing property is not affected.

New construction that adds value to the property represents the incremental value added to the existing property and will generate a supplemental assessment.

It is the property owner’s obligation to report  and advise the Assessor’s office of any improvement done on the property.

Failure to do so will result in back taxes and penalty equivalent to the additional amount assessed on the added improvement.  The Assessor’s standard formula for computation is to multiply the additional amount on the undeclared area by ten ( 10 ) years + the current year.  Should the undeclared area be built under ten years then proof must be shown so the actual amount can be computed.

SO WHAT COULD HAVE BEEN DONE BY THE BUYER ?

Since there are two tax declarations on a house and lot, one for the land and the other for the improvement, check on how old the tax declaration on the improvement is as it should be updated every three years.   In this particular case, a certified true copy was issued on 2001 but that doesn’t necessarily mean the property was assessed for any improvement.  In fact at the back of the tax declaration under description, it’s clearly stated that : SUBJECT TO INSPECTION AND RE-ASSESSMENT.

The Buyer should have made an agreement with the Seller that the inspection and re-assessment be done prior to the sale and any additional cost of unpaid realty taxes should be updated.

Given the current environment we are experiencing in the practice of Philippine Real Estate, “due diligence” in all aspects has never been more important.  Getting a certified true copy of Title and Tax Declaration isn’t sufficient ( of course, it helps if you personally  know the Seller ), you have to verify the authenticity of the Certified True copies from each government agency whether it’s the Bureau of Internal Revenue for the CAR, Assessor’s Office for the Tax Declaration and Register of Deeds for the Title.

Given the above scenario, I have to emphasize that the caption i recommended on every contract, be it a Contract to Sell, Deed of Conditional Sale or Deed of Absolute Sale should state the following :

Any legal government related tax, up to the release of the Certificate Authorizing Registration, Title and New Tax Declaration shall be for the account of the Seller.  ( This updates our previous template below )

Our current template reads as follows :

That the Capital Gains Tax / Creditable Withholding Tax, Value Added Tax ( if applicable ), Real Estate Taxes and Association Dues up to turnover of property, and any other legal Government related expense up to the release of the Certificate Authorizing Registration shall be for the account of the SELLER.

Of course, it’s best to have your “Real Estate Lawyer” review the Contracts involving the transaction as we all know that each case varies depending on the Seller, Buyer and Lawyer ( if any ).

Visit www.robertgsarmiento.org for blogs, news, case studies and property listings which you may find informative.

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thank you.

robert
Robert G. Sarmiento Properties
Professional Affiliation :
Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008, 2009
Philippine Association of Real Estate Brokers
San Juan Mandaluyong Chapter 1998, 1999
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