Understanding Fair Market Value: What Does It Really Mean?
Did you know that over 60% of property buyers in the Philippines base their offers on market trends rather than government-set values? Yet, many sellers mistakenly believe their property’s worth is solely dictated by the Bureau of Internal Revenue (BIR) or local government assessments.
This misunderstanding can lead to overpriced listings that sit unsold for months or undervalued properties that result in losses. Whether you’re a homebuyer, seller, or investor, knowing how Fair Market Value (FMV) is determined helps you make smart financial decisions and avoid unnecessary tax expenses.
Imagine you’re selling your house. You list it for ₱3.5 million, but after negotiations, a buyer agrees to purchase it for ₱3.3 million. That ₱3.3 million is the Fair Market Value (FMV)—the price that a willing buyer and a willing seller agree upon under normal conditions.
Many people assume FMV is a fixed price set by the government or appraisers, but that’s not true. It’s based on what properties are actually selling for in the market. Understanding FMV is crucial when:
- Selling a property – It helps you price it competitively.
- Buying a property – You can determine if the asking price is fair.
- Paying taxes – FMV affects capital gains tax, documentary stamp tax, and estate tax.
- Applying for a loan – Banks assess FMV before approving home loans.
Now that we know why FMV matters, let’s explore how to compute it in the Philippines.
What is Fair Market Value (FMV)?
Fair Market Value is the price a buyer is willing to pay and a seller is willing to accept under normal market conditions.
Unlike common belief, FMV is not set by any government agency—it’s influenced by:
✔ Real estate market trends (supply and demand)
✔ Property condition and location
✔ Comparable sales in the area
Government agencies like the BIR and local assessors provide estimates used for taxation, but the real FMV is dictated by actual sales transactions in the market.
How is Fair Market Value Computed?
In the Philippines, FMV is determined by the highest value among three key factors:
| Method | Description | Where to Find It? |
| 1. The Actual Selling Price | The agreed price between buyer and seller. | Based on recent sales of similar properties. |
| 2. BIR Zonal Value | The Bureau of Internal Revenue (BIR) assigns property values per area for tax purposes. | Check the BIR website |
| 3. Local Government Assessed Value | Local assessors estimate the property value for real estate tax purposes. | Request from the city or municipal assessor’s office. |
1. The Actual Selling Price
✅ This is the amount that a property is actually sold for in the market.
✅ It’s influenced by supply, demand, and economic conditions.
Example: In high-demand areas like BGC or Makati, selling prices may exceed zonal values due to strong demand.
2. BIR Zonal Value
✅ The Bureau of Internal Revenue (BIR) assigns zonal values to properties based on location.
✅ Used primarily for taxation purposes, including capital gains tax and documentary stamp tax.
✅ Zonal values can be outdated and may not always reflect current market trends.
Example: A lot in Cebu has a BIR zonal value of ₱10,000 per sqm, but properties are selling for ₱15,000 per sqm due to high demand. The FMV will likely be higher than the zonal value.
3. Local Assessor’s Value
✅ This is used by local government units (LGUs) to compute real property taxes.
✅ Usually lower than both the zonal value and actual selling price.
Example: In Quezon City, the assessor’s value for a property is ₱3.5 million, but the zonal value is ₱4 million, and actual sales data shows properties selling for ₱4.2 million. The FMV will be ₱4.2 million.
Since the government considers the highest of these three values as the FMV, it’s important to check all sources before finalizing a transaction.
Real-World Examples of FMV Calculation
Example 1: Selling a House in Quezon City
Let’s say you own a townhouse and want to determine its FMV.
- A similar house recently sold for: ₱4,000,000
- BIR zonal value: ₱3,800,000
- Local assessed value: ₱3,500,000
👉 Since the highest value among these is ₱4,000,000, that is your property’s FMV.
Why does this matter? If you list your house for ₱5,000,000, buyers may find it overpriced compared to market trends. On the other hand, pricing it at ₱3,500,000 means you might be selling below its real worth.
Example 2: Buying a Condo in Makati
You’re eyeing a pre-owned condo unit and want to check if the price is reasonable.
- Seller is asking for: ₱6,500,000
- BIR zonal value: ₱6,200,000
- Local assessed value: ₱5,900,000
👉 The FMV would be ₱6,500,000 (if this is the agreed selling price), as it is the highest among the values.
Tip: If you’re buying a property and the selling price is much higher than the FMV, you may have room to negotiate.
Common Misconceptions About FMV
❌ “The government decides my property’s FMV.”
✔ No—while the BIR and local assessors provide values, the actual market determines FMV based on demand and sales trends.
❌ “I can sell below FMV to pay less tax.”
✔ You can, but your taxes will still be based on the highest FMV computation (either zonal value, assessed value, or selling price).
❌ “FMV stays the same over time.”
✔ Wrong! FMV fluctuates based on market conditions, inflation, and property development in the area.
How FMV Impacts Buyers and Sellers Beyond Taxes
While FMV is often discussed in relation to taxation, it also affects:
- Property Appraisals: Banks use FMV to determine the loan amount for mortgages. recent sales of similar properties in your area.
- Negotiations: If you know the FMV, you can negotiate better as a buyer or seller.
- Investment Decisions: Investors use FMV to assess if a property is worth buying.
FAQs: Common Questions About FMV
Does the BIR set my property’s selling price?
- No. The BIR only assigns a zonal value for tax purposes, but the market (buyers and sellers) ultimately determines the actual price.
Can I sell my property below the FMV?
- Yes, but you’ll still have to pay taxes based on the highest FMV calculation.
What if I don’t agree with the BIR zonal value?
- You can request an appraisal from a licensed real estate appraiser to get a more accurate assessment.
Does FMV apply to vacant lots?
- Yes! FMV is used for all types of real estate—houses, condos, and land.
Can two properties in the same area have different FMVs?
- Yes! Factors like lot size, renovations, view, accessibility, and future developments can make one property more valuable than another.
How do I find the BIR zonal value of my property?
- You can check it on the BIR website or visit the nearest BIR Revenue District Office (RDO).
Conclusion: How to Use FMV to Your Advantage
FMV is not set by one entity—it’s a reflection of real transactions in the market. Knowing how to compute it can help you:
✅ Price your property correctly for a quick sale.
✅ Avoid overpaying when buying a home.
✅ Ensure accurate tax payments.
✅ Secure the best loan terms from banks.
What’s Next?
📌 Check the latest BIR zonal values for your area: BIR Zonal Values
📌 Compare similar properties in your neighborhood.
📌 Consult a licensed appraiser or real estate expert for a professional valuation.
📌 Track property values yearly if you own real estate investments.
Want help pricing your property accurately? Contact a real estate professional today!
U-Property PH 
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