Determining Fair Market Value (FMV) and Zonal/Zoning Valuation in the Philippines
A comprehensive legal‑technical primer
1. Why two “official” values exist
| Purpose |
Official Value Used |
Issuing Authority |
Key Taxes/Uses |
| Local assessment & RPT (Real Property Tax) |
Schedule of Fair Market Values (SFMV) |
City/Provincial Assessor (approved by Sanggunian) |
Basic & Special RPT, idle‑land tax, transfer tax |
| National internal revenue taxes |
Zonal (also called “zonal/zoning”) Values |
Bureau of Internal Revenue (BIR) Commissioner, by Revenue Regulations |
Capital‑gains, donor’s & estate taxes, DST, VAT on sale of real property |
Rule of thumb: In voluntary transfers the tax bases are whichever is higher of (a) consideration in the deed, (b) SFMV, or (c) BIR zonal value.
2. Statutory foundations
| Statute / Instrument |
Core provisions on valuation |
| 1987 Constitution |
Art. VI & Art. X grant LGUs power to create own revenue sources subject to Congress; Art. III §9 (eminent domain) requires “just compensation” = FMV at time of taking |
| Local Government Code (LGC), R.A. 7160 (1991) |
§§199–283: LGU must prepare a full Schedule of FMVs for every class of real property; revise “not later than three (3) years” after the last revision (§219) |
| National Internal Revenue Code (NIRC), as amended |
§6(E): BIR Commissioner issues zonal values; binding upon examiners and taxpayers unless taxpayer proves otherwise |
| Real Estate Service Act, R.A. 9646 (2009) |
Created PRBRES; adopted Philippine Valuation Standards (PVS) aligned with IVS |
| TRAIN Law, R.A. 10963 (2018) |
Reduced donor & estate rates but preserved BIR zonal valuation mechanism |
| DHSUD charter, R.A. 11201 (2019) |
Transferred HLURB’s land‑use & zoning powers to DHSUD & LGUs |
| Rules of Court, Rule 67 |
Just compensation in expropriation: court appoints commissioners who determine “market value of the property” |
| (Pending) Real Property Valuation and Assessment Reform Bill (RPVARA/REVAMP) |
Seeks a single, uniform value table per locality to harmonise SFMV & zonal values (at 2025 still pending in Congress) |
3. Definitions in Philippine jurisprudence & practice
| Term |
Working definition (Phil. context) |
Typical source |
| Fair Market Value (FMV) |
Price at which a willing buyer and willing seller will transact, neither being under compulsion and both having reasonable knowledge of the property’s uses |
Statutory (LGC §199(l)); jurisprudence (e.g., Republic v. Vda. de Castro, G.R. No. 160171, 2010) |
| Zonal Value |
Unit‑value (₱/m² or ₱/ha) fixed by BIR for each street/barangay, determined from actual sales data and consultations; used as minimum tax base |
BIR Revenue Regulations (latest consolidated table per Revenue Memorandum Order) |
| Zoning Valuation / Value |
Colloquial shorthand for “zonal value”; sometimes mistakenly used for “assessed value.” In planning literature it may refer to value premium/discount brought by zoning classifications (e.g., residential vs. commercial). |
|
4. How LGUs determine Schedules of Fair Market Values
- Data gathering – actual sales, listings, sworn declarations, local market studies.
- Classification – agricultural, residential, commercial, industrial, mineral (LGC §218).
- Valuation approaches under PVS
- Market (Sales Comparison) – preferred where sufficient comparables exist.
- Cost Approach – for special‑purpose or newly built structures.
- Income Approach – income‑producing property (malls, offices).
- Preparation of SFMV by Assessor → public hearing → Sanggunian ordinance adopting the schedule.
- Publication – once in a newspaper of general circulation & posting in public places (LGC §212).
- General Revision every three years or earlier upon (a) change in classification, or (b) order of DOJ/President, or (c) LGU creation, or (d) real estate boom/bust causing ≥20 % variance.
- Appeal – taxpayer may contest the assessment to the Local Board of Assessment Appeals (LBAA) within 60 days, then CBAA, CTA, up to SC.
5. How the BIR sets & updates zonal values
- Commissioner issues a draft table – Revenue District Office (RDO) gathers sales data, brokers’ prices, LGU SFMV, CLUP zoning maps, & DOF‑Valuation Service data.
- Public consultation – with realty boards, developers, LGUs (Revenue Regulations 12‑86).
- Approval – Commissioner signs Revenue Memorandum Order (RMO); values take effect 15 days after two newspaper publications or official BIR website posting.
- Periodicity – No fixed statutory cycle; DOF directs update “every three years or as needed.”
- Appeal – Taxpayer may present a private appraisal report to prove lower FMV (e.g., Citytrust v. BIR, CTA Case No. 6196).
6. Just compensation and the courts
When government expropriates, zonal values and SFMVs are merely guides, never conclusive. Courts employ:
- Market data at date of taking (not filing of complaint)
- Highest & best use principle
- Deduction for consequential benefits/damages
- 12 % interest p.a. (July 1 2013 to June 30 2022) or 6 % p.a. (from July 1 2022, Nacar v. Gallery Frames) on delayed payment
Recent cases:
- Republic v. Castillo (G.R. 220451, Feb 2024) – SC affirmed CTA that private appraisal > zonal value may prevail if supported by comparable sales.
- BCDA v. Taguig LGU (G.R. 258004, Sept 2023) – FMV at taking, not at writ‑of‑possession, determines compensation in public‑private partnership roads.
7. Practical interplay of values
| Transaction |
Which value commonly drives price? |
Typical issue |
| Voluntary sale of raw land |
Market price ↔ zonal (tax) |
If deed price < zonal, taxes spike & buyer often gross‑up price |
| Estate settlement |
FMV/Zonal (higher) → Estate tax |
Heirs may petition BIR to adopt lower private appraisal |
| RPT delinquency auction |
Assessed value (based on FMV) |
Investors hunt bargains because some SFMVs lag behind actual market |
| Bank collateral |
Independent appraiser per BSP rules |
Must exceed loan‑to‑value ratios; banks seldom rely on zonal alone |
8. Valuation methods recognized by Philippine Valuation Standards (2020)
| Approach |
Core procedure |
Where dominant |
| Sales Comparison |
Adjust comparable sales for time, location, size, zoning restrictions |
Subdivided lots, condos |
| Cost Approach |
Reproduction/Reconstruction cost new – (physical + functional + external depreciation) |
Schools, hospitals, infrastructure |
| Income Capitalization |
Net Operating Income ÷ Cap Rate; or DCF model |
Rentals (malls, offices, warehouses) |
| Residual Land Value |
DCF of to‑be‑built improvements less development cost → land value |
Highest & best use analysis in dense CBDs |
| Replacement Cost for Public Assets |
Indexed cost less depreciation (Commission on Audit’s replacement cost manual) |
Roads, bridges, utilities in expropriation |
9. Zoning, land‑use plans & “value impact”
- Comprehensive Land Use Plan (CLUP) – Prepared by LGU, approved by Sangguniang Panlalawigan or DHSUD.
- Zoning Ordinance – Gives force of law to CLUP classifications. A favourable rezoning (e.g., from “agricultural” to “high‑density residential”) can multiply market value overnight.
- However, until an amendment is approved & published, assessor/BIR must still use previous land classification in their valuation tables.
10. Common pain points & tips
| Issue |
Practice pointer |
| SFMV years out‑of‑date |
Check if LGU failed to revise within three‑year window; assessment may be voidable (SC: City of Iloilo v. Legaspi, 2014) |
| Zonal value > true price |
File Request for Re‑valuation with RDO citing at least three arm’s‑length comparables + sworn statement of value |
| Conflicting lot areas between TCT & tax map |
Secure Geodetic Engineer’s relocation survey; request amendment of assessment roll & BIR tax docket |
| Mixed‑use condos |
Allocate floor areas among residential/commercial to benefit from lower residential rates |
| Ocular inspection not done |
Assessment void if assessor fails to comply with §220 LGC personal inspection requirement (SC: Casifit Dev. v. City of Pasig, 2022) |
11. Reform horizon (as of April 2025)
- RPVARA / Real Property Valuation Reform Bill – House Bill 6558 & Senate Bill 422 – would merge SFMV & zonal values into a “Uniform Real Property Valuation Table” managed by DOF’s Bureau of Local Government Finance; LGUs to adopt the table for RPT, BIR for national taxes; appraised every three years. Still pending in the Senate Ways & Means Committee.
- Electronic Real Property Tax Administration System (ERPTAS) pilot (2024) – integrates GIS parcel map, SFMV layers, & online billing in 10 LGUs (Batangas City, Mandaue, etc.)
- PVS 2025 edition exposure draft adopts IVSC’s ESG & sustainability disclosures, likely to reshape highest‑and‑best‑use tests near coastal/heritage zones.
12. Key take‑aways for practitioners
- Always triangulate deed price vs. SFMV vs. zonal; the highest drives the tax.
- Document your valuation – bring at least three comparables and a sworn‐valuation report when disputing.
- Watch LGU ordinances & CLUP amendments – zoning drives both FMV and tax exposure.
- In expropriation, private appraisal and expert testimony carry the day; government tables are only starting points.
- Track RPVARA; once passed, expect one harmonised value list and a likely spike in undervalued LGU SFMVs.
Prepared April 17 2025 for legal‑educational use. For case‑specific advice always consult a Philippine lawyer or licensed real‑estate appraiser.