Deed of Sale and Real Estate Transaction Fees

Below is a comprehensive overview of the Deed of Sale for real estate in the Philippines and the related transaction fees, taxes, and procedures. This article is meant as a general reference. Since laws and regulations can change, and every property transaction involves unique circumstances, it is always best to consult a licensed attorney or professional for specific legal advice.

1. What Is a Deed of Sale?

A Deed of Sale (sometimes called a “Deed of Absolute Sale”) is a legal document that confirms the transfer of ownership of real property (land, house and lot, condominium unit, etc.) from the seller (vendor) to the buyer (vendee). In the Philippines, this document is governed primarily by the Civil Code and other relevant laws, such as the Property Registration Decree (Presidential Decree No. 1529) and regulations from agencies like the Bureau of Internal Revenue (BIR) and the Land Registration Authority (LRA).

Key Elements of a Valid Deed of Sale

  1. Full legal names and personal details of both seller and buyer.
  2. Description of the property being sold (with technical descriptions for real property, including its lot number, block number, or condominium unit details as stated in the Certificate of Title).
  3. Purchase price (the total amount paid by the buyer and the mode of payment).
  4. Acknowledgment/Notarization before a notary public (required for registration).
  5. Signatures of both parties (and witnesses, if required).

When the Deed of Sale is notarized, it becomes a public document and is a key requirement for securing the transfer of the property’s title to the buyer’s name.

2. Deed of Sale vs. Contract to Sell

  • Contract to Sell: A conditional agreement whereby the seller promises to sell the property once the buyer completes full payment (e.g., under an installment plan). Ownership is not yet transferred because the buyer must meet certain conditions first (often full payment).
  • Deed of Sale/Deed of Absolute Sale: An outright transfer of ownership from seller to buyer. Once executed and notarized, the buyer acquires all rights to the property and can then register the property with the relevant government office.

3. Types of Deeds of Sale

  1. Deed of Absolute Sale: Conveys complete and unconditional transfer of ownership, typically used when the buyer has paid the full purchase price.
  2. Conditional Deed of Sale: Transfer is subject to specific conditions (e.g., certain installments or requirements before final transfer).
  3. Deed of Sale with Assumption of Mortgage: Used if the buyer will take over an existing loan or mortgage on the property.

For the registration of ownership and the payment of taxes, most processes revolve around the Deed of Absolute Sale.

4. Execution and Notarization

  1. Drafting the Document: Usually prepared by the seller’s attorney or broker, ensuring complete and accurate details.
  2. Review by Parties: Both parties check the contract for any errors (name spelling, property details, price, etc.).
  3. Signing: Both parties sign before the notary public. The notary will require valid government-issued IDs from the buyer and seller, as well as other relevant documents (e.g., Certificate of Title, Tax Declarations).
  4. Notarial Acknowledgment: The document is notarized, making it a public instrument. Notarization fees will vary based on the property value or the attorney’s notarial schedule of fees.

Tip: Always keep multiple original notarized copies of the Deed of Sale for submission to the BIR, Registry of Deeds, local government offices, and personal records.

5. Real Estate Transaction Fees and Taxes

In the Philippines, the transfer of real property typically involves several fees and taxes. Although practices may vary, the usual distribution of costs is as follows:

A. Seller’s Costs

  1. Capital Gains Tax (CGT)

    • Rate: 6% of the gross selling price, the zonal value, or the fair market value (whichever is higher).
    • Legally imposed on the seller. Under the Tax Code, CGT must be paid within 30 days after the date of the Deed of Sale.

  2. Broker’s Commission (if applicable)

    • Typically ranges between 3% to 5% of the selling price.
    • Payment terms are negotiated in the listing agreement or sales contract.

  3. Notarial Fees (sometimes shared)

    • Can vary, but it may be charged as a percentage of the property value or a flat rate.
    • In practice, some parties agree to split the notarial fee.

  4. Unpaid Real Property Taxes (if any)

    • The seller must settle any unpaid realty taxes (amilyar) and penalties up to the date of sale.

B. Buyer’s Costs

  1. Documentary Stamp Tax (DST)

    • Rate: 1.5% of the selling price, the zonal value, or the fair market value (whichever is higher).
    • Must be paid to the BIR on or before the 5th day of the month following the notarization of the Deed of Sale or within the deadlines set by the BIR.

  2. Transfer Tax

    • Imposed by the province or city/municipal government.
    • Rates vary but typically around 0.5% to 0.75% of the value of the property (depending on local ordinances).

  3. Registration Fee

    • Paid to the Registry of Deeds (under the LRA) for the issuance of a new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT).
    • Calculated based on a graduated scale from the Land Registration Authority. As a rough guide, registration fees often range from a few thousand pesos to tens of thousands, depending on the property value.

  4. Notarial Fee (sometimes shared)

    • If not paid by the seller, the buyer may shoulder all or part of this cost based on prior agreement.

  5. Miscellaneous Fees

    • May include fees for obtaining a tax clearance, homeowner’s association clearance (if required), Home Development Mutual Fund (Pag-IBIG) documentation (if applicable), and other local government clearances.

Note: The allocation of fees can be negotiated in the contract. However, by common practice and default legal provision, the seller shoulders Capital Gains Tax, while the buyer shoulders Documentary Stamp Tax, Transfer Tax, and Registration Fees unless both parties agree otherwise.

6. Process of Transfer and Registration

Once the Deed of Absolute Sale is executed and notarized, the buyer usually leads the registration process. Below is a typical workflow:

  1. Pay Capital Gains Tax and Documentary Stamp Tax at the BIR.

    • Submit the notarized Deed of Sale and other required documents (e.g., Tax Declaration, previous Certificate of Title, identification documents).
    • The BIR issues a Certificate Authorizing Registration (CAR) or eCAR once taxes are paid.

  2. Obtain Transfer Tax Clearance from the Local Treasurer’s Office.

    • Present CAR/eCAR, Deed of Sale, tax declarations, and other required documents.
    • Pay the transfer tax as computed by the local government unit (LGU).

  3. Register with the Registry of Deeds.

    • Present the original title, notarized Deed of Sale, CAR/eCAR, Transfer Tax receipt, tax declarations, and other relevant documents.
    • Pay the registration fee.
    • The Registry of Deeds will cancel the old title in the seller’s name and issue a new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) in the buyer’s name.

  4. Update Tax Declaration at the City/Municipal Assessor’s Office.

    • The buyer updates the property’s tax declaration in their name for real property tax purposes (amilyar).

  5. Other Clearances/Documentary Requirements (if applicable).

    • If in a subdivision or a condominium, the new owner may need clearance from the Homeowners Association or the Condo Corporation for the change of ownership records.

7. Common Pitfalls and Tips

  1. Ensure All Taxes Are Paid on Time

    • Penalties and surcharges may accrue quickly if Capital Gains Tax and DST are not paid on schedule.

  2. Verify the Title’s Authenticity

    • Conduct due diligence on the property’s title before signing any Deed of Sale. You may request a Certified True Copy of the title from the Registry of Deeds and check for encumbrances or liens.

  3. Check for Real Property Tax Arrears

    • Unpaid property taxes become a liability on the property itself, so confirm with the local Treasurer’s Office that the seller’s taxes are up to date.

  4. Consider the Zonal Value vs. Selling Price

    • The BIR uses the higher of the selling price or zonal value/fair market value to compute taxes. Make sure you know the local zonal values to avoid under-declaring the value (which can lead to legal issues and penalties).

  5. Negotiate Who Bears Which Fees

    • Although tradition assigns Capital Gains Tax to the seller and Documentary Stamp Tax, Transfer Tax, and Registration Fees to the buyer, the parties can mutually agree on a different arrangement, provided it is clearly stated in the Deed of Sale.

  6. Engage Professionals

    • Always work with licensed real estate brokers, lawyers, or reputable agents. Avoid unlicensed “fixers,” as this can lead to legal and financial complications.

8. Frequently Asked Questions

  1. Is a Deed of Sale Valid Without Notarization?

    • A contract of sale can be valid even if not notarized (i.e., it exists as a private contract). However, without notarization, you cannot register the property with the Registry of Deeds. Notarization is mandatory to make the document a public instrument and complete the transfer of title.

  2. Can the Deed of Sale Be Cancelled?

    • Generally, once there is a perfected sale and the Deed of Absolute Sale is notarized, it is enforceable. Cancellation would require valid legal grounds (e.g., fraud, mutual mistake, lack of contractual capacity), and this usually requires court action or a mutual rescission agreement.

  3. How Do I Compute the Exact Fees?

    • Capital Gains Tax = 6% x (Selling Price or Zonal Value or Fair Market Value, whichever is higher).
    • Documentary Stamp Tax = 1.5% x (Selling Price or Zonal Value or Fair Market Value, whichever is higher).
    • Transfer Tax and Registration Fees vary based on local ordinances and LRA rates.
    • It is best to visit the BIR’s Regional District Office (RDO) and the local Treasurer’s Office for an exact computation.

  4. What If the Seller Fails to Pay the Capital Gains Tax?

    • The property transfer cannot be registered without the BIR’s Certificate Authorizing Registration (CAR/eCAR). Additionally, the seller (or the party legally responsible) will be subject to penalties and surcharges.

  5. Is the ‘Deed of Sale’ Different From the ‘Title’?

    • Yes. The Deed of Sale is the contract proving the sale transaction; the Title (TCT or CCT) is the official document from the government showing registered ownership of the property. After registration, the buyer will have the new Title issued in their name.

9. Conclusion

A Deed of Sale is central to completing a real estate transaction in the Philippines. Ensuring compliance with all legal requirements—particularly notarization, tax payments, and registration—is essential to secure ownership rights and avoid future disputes. Buyers and sellers should be aware of their respective obligations, especially regarding tax liabilities and fees. When in doubt, always seek legal counsel or professional assistance to navigate this process smoothly and protect your interests.

Disclaimer

This article is for general informational purposes only and does not constitute legal advice. Laws and regulations may change, and specific situations can differ significantly. For personalized advice, always consult a licensed attorney or real estate professional in the Philippines.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.

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