I. Concept and importance of Fair Market Value

Fair Market Value (FMV), in Philippine property practice, refers to the price a residential property would likely fetch in an open and competitive market, under conditions where buyer and seller are willing, neither is under compulsion, and both have reasonable knowledge of the property’s facts and legal condition. FMV is not a single number used uniformly for all purposes. In the Philippines, FMV is often encountered in at least four overlapping but distinct settings:

Local taxation (Real Property Tax or RPT) – valuation for annual property taxes.
National taxation (transfer and estate/donor’s taxes) – valuation for capital gains tax, documentary stamp tax, estate tax, donor’s tax, and related purposes.
Private transactions and financing – bank appraisal, negotiated purchase price, and collateral valuation.
Judicial and quasi-judicial contexts – expropriation, partition, damages, and other court-determined valuations.

Understanding FMV requires identifying which FMV is being referred to, because Philippine laws and administrative practice use several valuation reference points that can differ significantly.

II. The legal framework: how Philippine law structures valuation

A. Local Government Code (RPT system): “fair market value” as part of assessment

For Real Property Tax, the valuation system is anchored on the Local Government Code of 1991 (LGC). Under the LGC, provinces, cities, and municipalities within Metro Manila impose RPT based on:

FMV (as determined by the assessor using an approved schedule of values), multiplied by
an assessment level (a statutory percentage depending on property class), producing
assessed value, which is then multiplied by
the local tax rate to compute the annual RPT.

This is the valuation most homeowners feel annually—yet it often lags behind private-market prices because it depends on local schedules and general revision cycles.

Key institutions in this system:

Local Assessor – prepares and maintains the Schedule of Fair Market Values (SFMV) and conducts appraisal/assessment.
Sanggunian (legislative council) – enacts an ordinance adopting the SFMV.
Local Treasurer – collects RPT based on the assessed value.

B. National tax system (BIR context): FMV by zonal valuation or assessor’s value

For taxes on transfers (sale, donation) and estate settlement, the valuation reference is typically driven by the rule that the tax base should not be lower than government-recognized FMV. In practice, this commonly means comparing:

BIR zonal value (for the property’s location), and
local assessor’s FMV (from tax declaration / SFMV),

and using the higher figure as the government minimum value for computing applicable taxes (subject to the specific tax involved and prevailing rules).

This is why a property can have:

a market selling price agreed by parties,
a BIR minimum (zonal/assessor benchmark), and
an RPT value (assessed value derived from assessor FMV × assessment level),

all at the same time.

C. Appraisal practice and standards

While statutes establish tax valuation mechanisms, private market valuation is usually performed by licensed appraisers and/or banks using recognized appraisal approaches. In residential settings, the market approach is commonly dominant.

III. FMV is not “selling price”: the Philippine reality of multiple values

Residential property in the Philippines commonly carries multiple “values,” each serving a different legal or commercial function:

Contract price / selling price – what buyer and seller agree on (may be above or below government benchmarks).
Appraised market value – as estimated by a professional appraiser or bank, usually for lending or investment decisions.
Assessor’s FMV – a value used as the basis for assessment in the RPT system, tied to the local SFMV.
Assessed value – assessor’s FMV × assessment level (this is what RPT rates apply to).
BIR zonal value – a government valuation reference for taxation, particularly transfers/estates.

A legally literate approach is to ask: FMV for what purpose? The determination method and consequences follow from that purpose.

IV. How FMV is determined under the local assessor’s system (RPT)

A. The Schedule of Fair Market Values (SFMV)

The SFMV is a locality’s official valuation schedule, typically organized by:

barangay or zone,
classification (residential, commercial, industrial, agricultural),
land use and location attributes (e.g., interior vs. along main roads),
and often building typologies and construction classes.

The assessor uses the SFMV as the starting point for valuation. For land, the SFMV provides base values per square meter (or other unit). For improvements (house/building), it provides standardized values depending on construction type, materials, age, condition, and floor area.

General revision of assessments occurs periodically. In practice, revisions do not always happen strictly on schedule in all LGUs, and this contributes to gaps between assessor FMVs and private-market prices.

B. Classification: residential vs. other

Determination begins by classifying the property:

Residential land is generally land used principally for dwelling purposes.
Mixed-use or income-producing residential properties can raise classification issues (e.g., house with storefront or rental units), potentially affecting valuation and assessment levels.

C. Land valuation factors (as typically applied by assessors)

For residential land, assessors commonly consider:

location and neighborhood (access, proximity to roads, commercial centers),
zoning and land use restrictions,
topography and usability (flat vs. sloping; flood susceptibility),
shape, frontage, and depth (marketability),
road right-of-way and access,
easements (legal constraints on use),
encumbrances and restrictions that affect utility (when known and recognized for assessment).

The assessor’s valuation is structured and schedule-based; it is not purely a bespoke market appraisal, though it aims to approximate market value in a standardized way.

D. Building/improvement valuation factors

Residential improvements (houses, garages, fences, pools) are valued with consideration of:

construction type (wood, mixed, reinforced concrete, etc.),
quality/grade of materials and workmanship,
floor area and design,
age and remaining economic life,
physical depreciation (wear and tear),
functional obsolescence (layout no longer competitive),
external obsolescence (neighborhood decline, noise, etc.).

A common method is replacement cost new less depreciation (RCNLD), using standardized cost schedules.

E. From FMV to assessed value (the tax base for RPT)

The assessor’s FMV does not directly get taxed. RPT uses assessed value, computed by applying assessment levels set by law and local ordinance frameworks (within statutory bounds).

So, even if two homes have the same FMV, their RPT can differ if:

classification differs (residential vs. commercial),
assessment level differs (e.g., because of use or special classes),
exemptions apply.

F. Special situations: subdivisions, condominiums, and common areas

Subdivision lots: SFMVs often differentiate between:
- prime lots (corner, near amenities),
- interior lots,
- lots along major roads.
Condominium units:
- value is tied to the unit and its undivided interest in common areas,
- documentation and titling (CCT) shape how the assessor records the taxable property.
Common areas:
- depending on the condominium setup and registration, common areas may be treated in specific ways for assessment and taxation.

V. How FMV is determined for BIR and transfer-related taxation

A. Zonal valuation (BIR) as a practical “minimum”

The BIR issues zonal valuations that assign benchmark values per area and property type. These are used to prevent undervaluation in deeds of sale and declarations for estate/donor purposes.

In many tax computations, the government’s recognized FMV is effectively:

the higher of the BIR zonal value and the local assessor’s FMV.

B. Why the BIR value can exceed assessed values dramatically

RPT assessed values are derived from assessor FMVs and assessment levels and may be based on older schedules. By contrast, zonal values may be updated differently and can better track certain market increases—though they can also be blunt instruments that miss micro-location factors.

C. Transaction price vs. FMV for tax base

Even when parties agree on a contract price, tax authorities may compute taxes on the FMV benchmark if it is higher. This is a key legal risk area:

underdeclaring consideration can lead to higher tax assessments, penalties, and delays in issuance of clearances.

VI. How private-market valuation is determined (appraisers, banks, buyers)

Private and bank appraisals aim to estimate the most probable market price, considering real conditions of the property and market. The main appraisal approaches are:

A. Market (sales comparison) approach — most common for residential

This compares the subject property with recent sales or listings of similar properties, adjusting for:

location and neighborhood,
land area,
floor area,
condition and finishes,
age and design,
view, corner lot, frontage,
amenities (parking, pool),
legal/titling issues affecting risk.

In Philippine residential valuation, reliable comparable sales data can be difficult to obtain, so appraisers often triangulate among:

verified sales, if available,
credible listings,
bank transaction data (when accessible),
developer pricing (for subdivisions/condos),
and observed market absorption.

B. Cost approach — common for unique homes or when data is thin

Typically:

land value (from market comparisons or schedule references), plus
replacement cost new of improvements, minus
depreciation (physical, functional, external).

This approach becomes important for:

custom-built homes,
properties in areas with few comparable transactions,
newly built houses where cost is closely tied to value.

C. Income approach — less common for owner-occupied residential, relevant for rentals

For income-producing residential (apartments, rental houses), value can be derived from:

net operating income,
capitalization rates consistent with local investor expectations,
vacancy and expense assumptions.

D. Bank “conservative value” and forced-sale considerations

Banks may adopt:

a market value estimate, and sometimes
a lower “loan value” or “forced sale value,” reflecting liquidation risk and time-to-sell assumptions.

VII. Legal and practical factors that strongly affect FMV in the Philippines

A. Title and registrability risks

FMV is highly sensitive to whether the property can be cleanly transferred:

Titled property (TCT/CCT) generally commands higher FMV than untitled.
Clouded title, overlapping claims, or inconsistent technical descriptions can materially discount value.
Pending litigation, adverse claims, or annotations can suppress marketability.

B. Land use restrictions, zoning, and permits

Zoning classification affects highest and best use:

a residential designation limits commercialization,
special zones or restrictions can affect redevelopment potential.

C. Physical constraints and hazards

flood-prone areas,
landslide susceptibility,
coastal setbacks,
easements (e.g., legal easement along waterways),
access issues (landlocked property and right-of-way disputes).

These may not always be fully reflected in government schedules but can heavily influence private FMV.

D. Encumbrances and occupancy

existing tenants and leases (especially long-term or rent-controlled-like arrangements by contract),
informal occupants,
caretaker arrangements,
co-owner occupancy disputes.

A property sold with difficult occupancy conditions can be discounted.

E. Developer attributes in subdivisions/condominiums

For condos and subdivisions:

developer reputation and maintenance quality,
condo corporation governance and dues,
amenities, density, elevator counts,
building age and retrofits.

These can cause two similar units to trade at different values.

VIII. FMV in specific legal contexts

A. Expropriation (eminent domain)

In expropriation, courts determine just compensation, which is anchored on market value concepts and relevant factors at the time of taking. Judicial valuation is evidence-driven, often relying on commissioner reports, appraisals, comparable sales, and the property’s highest and best use (within legal bounds).

B. Partition, estate settlement, and intra-family transfers

FMV matters in:

equalization among heirs,
buyout computations,
determining whether transfers are fair,
and computing taxes based on government FMV benchmarks.

C. Damages and disputes (breach, fraud, defective sale)

FMV may be used to measure:

benefit-of-the-bargain damages,
diminution in value,
or restitution-type remedies, depending on the case theory and evidence.

IX. Evidence and documentation that typically support FMV

A. Government references

Tax Declaration and latest assessed values (not conclusive of market price but influential).
Assessor’s certifications and local SFMV references.
BIR zonal valuation references.

B. Private references

appraisal reports by licensed real estate appraisers,
bank appraisal summaries,
validated comparable sales data,
subdivision/condo developer price lists (especially for primary sales),
reputable broker price opinions (supporting, but weaker than appraisal).

C. Transactional documents that can trigger valuation scrutiny

Deed of Absolute Sale with declared consideration,
Deed of Donation,
Extra-judicial settlement documents,
Capital gains and documentary stamp filings,
Estate tax returns and supporting schedules.

X. Common misconceptions in Philippine residential FMV

“The tax declaration value is the real market value.” It is a government schedule-based figure for local taxation; it can be below or above actual market price.
“Selling price controls taxes.” Many tax computations use the government-recognized FMV when higher than declared consideration.
“Zonal value is always market value.” It is a benchmark; it can be stale or insensitive to micro-location differences.
“Assessed value is the basis for transfer taxes.” Assessed value is primarily for RPT computation. Transfer-related taxes typically look to FMV benchmarks (zonal/assessor FMV), not assessed value.
“A bank appraisal equals true value.” Bank appraisals are often conservative and collateral-focused; they are persuasive but not definitive.

XI. Practical implications for homeowners and buyers

A. For sellers

If the declared price is below government FMV benchmarks, expect taxes to be computed on the benchmark and documentation scrutiny to increase.
Consider the property’s legal readiness: clearing title issues can raise realizable FMV more than cosmetic upgrades.

B. For buyers

Budget not only for the purchase price but for taxes and fees computed using government FMV benchmarks.
Confirm whether the property’s improvements are properly declared; undeclared improvements can lead to reassessment later.

C. For heirs and families

Align estate planning with how government FMV benchmarks drive tax exposure and documentation requirements.
Treat informal “family pricing” carefully; undervaluation can lead to tax consequences and future disputes among heirs.

XII. A structured way to analyze FMV in Philippine residential property

A sound Philippine-context FMV analysis usually proceeds in this order:

Identify the purpose (RPT, BIR transfer/estate, bank financing, negotiation, litigation).
Check government benchmarks (assessor’s FMV/SFMV and BIR zonal value where relevant).
Assess legal marketability (title, annotations, right-of-way, occupancy, zoning compliance).
Evaluate physical attributes (land characteristics, improvements, condition, hazards).
Apply valuation approach appropriate to the purpose:
- market approach for typical homes and condos,
- cost approach where comparables are limited or improvements are unique,
- income approach for rental residential.
Reconcile values (explain differences among tax benchmarks, bank values, and negotiated price).

XIII. Conclusion: FMV in the Philippines is a purpose-driven legal and practical construct

In the Philippines, FMV is determined through overlapping systems: a standardized local assessor schedule for RPT purposes; BIR benchmark values for national tax administration; and private appraisal methods for lending and transactions. The “true” FMV for any residential property is therefore best understood not as a single universal number, but as a reasoned value conclusion tied to a specific legal purpose, supported by documentary benchmarks, and refined by market evidence and legal/physical realities.