NET-PRICED PROPERTIES

Client: Juan, I’m planning to buy a condo. I saw a unit I really like. The seller is asking Php 18 Mn net to seller. Is there anything I should be careful about?

Juan: I’d be very cautious when dealing with net-priced properties.

When a seller insists on a net price — meaning the buyer shoulders all taxes and broker’s fees — it’s often because they’re worried the sale could be subject to VAT. [There’s actually another common reason sellers go for net pricing, but let’s just say it’s not something I can put on record.]

Client: But isn’t VAT billed separately? It’s not needed for title transfer, right?

Juan: That’s correct — VAT isn’t a requirement for transferring the title. But here’s the catch: if you don't pay it (since you don't get billed for it), the BIR later goes after the seller for unpaid VAT (plus penalties), don’t be surprised if the seller expects you to cover it, including the penalties.

Client: What?! That's so gulo!

Juan: Exactly. I’ve never understood why why some sellers or brokers push net pricing. With gross pricing — where the selling price already includes Capital Gains Tax/VAT and broker’s fees — it’s easy to compute. If a client tells us they want X amount in their pocket, we just work backwards to get the gross price. That’s what we advertise.

Client: What’s the chance that this sale will actually be subject to VAT?

Juan: From your perspective, it’s safer to assume that it will.

A property can be classified as an ordinary asset — and therefore subject to VAT and income tax — for several reasons:

1.⁠ ⁠The unit was leased out.

2.⁠ ⁠The owner is registered as someone in RE business or a corporation.

3.⁠ ⁠The seller is considered “habitually engaged” in real estate (usually if they’ve had more than 5 property sales in a year).

Client: So to compute the gross price, I just add VAT to the selling price?

Juan: You’ll need to add both 12% VAT and 6% CWT — so about 18% on top. To work it out: Php 18 Mn ÷ (100% - 18%) = roughly Php 21.95 Mn. Compare that to other gross-priced units to see if this deal still makes sense.