If you’ve ever sat at a closing table or chatted with someone selling property, chances are you’ve heard the line:

“I-declare na lang natin ’yung mas mababa para makatipid sa taxes.”

It’s whispered like a clever loophole—a secret hack to cut costs and close the deal faster. On paper, it sounds like a win: reduce the declared value, pay less in taxes, and everyone walks away happy.

But here’s the truth:

That “shortcut” can derail your entire transaction, especially when bank financing is involved. Undervaluing a property—declaring a price lower than the actual selling or market value—is a risky move that can lead to legal issues, loan delays, BIR penalties, and even failed deals.

In this article, we’ll break down:

• What it really means to undervalue a property
• Why it’s a dangerous and often illegal move under Philippine law
• How banks and the BIR respond when they spot inconsistencies
• What a clean, fully compliant process looks like—and why it’s worth it

What Does It Mean to Undervalue a Property Sale?

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In Philippine real estate, “undervaluing” a property sale means declaring a lower selling price on the official documents—usually in the Deed of Absolute Sale (DOAS)—than what was actually agreed upon between the buyer and seller. This lower declared value becomes the basis for computing government taxes related to the transfer of ownership.

Why do people do it?

The motivation is simple: to pay less in taxes. By lowering the declared value, both parties aim to reduce the following:

• Capital Gains Tax (CGT) – 6% of the declared selling price or zonal value, whichever is higher
• Documentary Stamp Tax (DST) – 1.5% of the same base
• Transfer Tax – around 0.5% to 0.75%, depending on the local government unit (LGU)

This practice is especially common in all-cash or private deals where no third-party lender (like a bank) is involved. Since no institution is verifying the transaction value, the buyer and seller may mutually agree to keep the official price low and just transact the remaining balance “off the books.”

While this might seem like a clever way to save money upfront, it’s a legal and financial gamble that could lead to serious consequences—especially once bank financing or BIR scrutiny enters the picture.

Why It’s Risky and Potentially Illegal

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Undervaluing a property sale might sound like a clever way to cut down on taxes, but in reality, it’s a legal and financial minefield. What may start as a simple agreement between buyer and seller can spiral into delays, penalties, and long-term complications—especially when the transaction involves a bank. Here’s why this practice can backfire in more ways than one:

1. It’s a Violation of the Tax Code

Under Section 248 (A)(3) of the NIRC, both parties in a real estate transaction are required to declare the true and full consideration or selling price of the property. Intentionally declaring a lower amount is considered tax evasion.

If discovered, the Bureau of Internal Revenue (BIR) can impose:

• A surcharge of 25% to 50% of the tax deficiency
• Interest of 20% per annum on the unpaid amount
• Possible criminal prosecution for fraudulent misrepresentation

Simply put, a short-term tax “savings” strategy can lead to long-term financial and legal headaches.

2. It Delays or Blocks Bank Loan Release

When a property is purchased through bank financing, the declared sale price must match the loan amount or the appraised value. Banks review all documents carefully, including the Deed of Absolute Sale, before releasing funds.

If the declared price is lower than the loan value, the bank may:

• Refuse to disburse the loan proceeds, or
• Put the transaction on hold until all documentation is corrected

This can cause serious delays in the transfer process—or worse, a failed transaction after months of preparation.

3. BIR Will Still Assess the True Value

Even if you try to reduce the declared value, the BIR is equipped to determine the actual fair market value of the property using:

• Zonal values
• Tax declaration records
• Independent assessments or sales comparisons

In short, the BIR can reassess the transaction, compute the deficiency tax, and impose penalties. This can also delay the issuance of the Certificate Authorizing Registration (CAR), which is essential for title transfer.

4. It Weakens Buyer Protection

For buyers, undervaluing poses a significant risk. When the deed reflects a lower price than what was actually paid, it becomes difficult to prove the full payment amount.

This can lead to problems if:

• The seller disputes the payment or refuses to sign closing documents
• Legal issues arise and there’s no paper trail showing the true transaction
• The buyer needs to prove the property’s cost for resale, taxation, or financing later on

In effect, the buyer pays more but holds documentation that says they paid less—a legal disadvantage in any dispute.

Common Myths About Undervaluing

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Undervaluing a property sale has long been treated like an “open secret” in the Philippine real estate scene—whispered at negotiations, passed on like friendly advice, and justified as a practical move. But just because something is common doesn’t mean it’s correct—or safe. Let’s debunk a few of the most persistent myths surrounding this risky practice:

The Truth?

When it comes to real estate, transparency is your best protection. There’s nothing “wise” about underdeclaring—it’s a gamble that can cost you far more than what you were trying to save.

What to Do Instead: The Right Approach

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If you want a smooth, legally sound, and stress-free property transaction, there’s only one path worth taking: do it right from the start. Undervaluing might seem like a shortcut, but full transparency is the real fast track to successful title transfer—especially when a bank loan is involved. Here’s how to handle it the right way:

✅ Declare the Actual Selling Price or Bank-Appraised Value

Always reflect the true selling price in the Deed of Absolute Sale, or at minimum, the bank’s appraised value—whichever is higher. This ensures that the sale aligns with both BIR guidelines and bank loan documentation, preventing issues during loan release and title transfer.

💼 Pay the Correct Taxes Based on the Total Property Value

Calculate and pay the following taxes based on the full property value, including both land and improvements (e.g., the house):

• Capital Gains Tax (6%)
• Documentary Stamp Tax (1.5%)
• Transfer Tax (0.5% to 0.75%)

Paying the correct taxes avoids BIR reassessments, penalties, and delays in getting the Certificate Authorizing Registration (CAR), which is required before the title can be transferred to the buyer.

🧾 Work With a Broker or Legal Expert

Don’t DIY your way through a multi-million peso transaction. Partner with a real estate broker or attorney who can:

• Guide you through proper valuation
• Ensure your documents comply with BIR, LGU, and bank requirements
• Represent your interest at each step of the transaction

A trusted professional doesn’t just get the paperwork done—they protect your investment.

🏦 Let the Bank Manage the Disbursement

If you’re using bank financing, the bank will act as the gatekeeper of the transaction. They’ll release the loan proceeds only after:

• Proper valuation and appraisal
• Verification of all legal documents
• Tax payments and submission of the CAR

Letting the bank manage the disbursement ensures that no funds are released prematurely, and that both buyer and seller are protected throughout the process.

Real-Life Scenario: A 3-Month Delay That Could’ve Been Avoided

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Here’s a true-to-life case from a Metro Manila transaction that highlights why undervaluing a property sale—even with good intentions—can lead to frustrating delays and financial consequences.

A buyer was set to purchase a house and lot for ₱7 million. The deal was bank-financed, and the loan was approved without issues. However, during the processing of the title transfer, the seller proposed to declare only ₱5 million in the Deed of Sale “to save on taxes,” and the buyer, trying to minimize upfront costs, agreed.

That decision triggered a chain reaction:

• ✅ The bank flagged the mismatch between the approved loan amount (₱7M) and the declared selling price (₱5M).
• ❌ The documents had to be revised and resubmitted, delaying the release of the loan proceeds.
• ❌ The BIR launched a review after noticing the discrepancy between the market value, tax declaration, and declared sale price.
• ⚠️ They required additional supporting documents and eventually imposed surcharges and interest on the underpaid taxes.
• ⌛ The entire transaction, originally set to close within 3 months, dragged out for over 6 months.

In the end, both buyer and seller had to spend more on legal fees, penalties, and reprocessing—far more than the taxes they were trying to avoid.

Conclusion

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Undervaluing a property sale may seem like a clever way to cut costs—but as we’ve seen, it’s a gamble with serious consequences. From delayed bank releases to BIR penalties and weakened legal protection, the risks far outweigh the short-term tax savings. In contrast, doing things by the book—declaring the full selling price, paying the correct taxes, and working with professionals—ensures a smooth, stress-free transaction that protects both buyer and seller.

If you’re navigating a property sale or purchase, don’t take shortcuts. Work with someone who knows the ins and outs of real estate laws and bank processes in the Philippines.