Understand the Deed of Absolute Sale (DOAS)

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When it comes to buying real estate in the Philippines, making sure you fully grasp the property sales contract is essential.

Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.

We've heard countless stories of people making costly mistakes when signing their property agreement in the Philippines. We want to help you avoid the same experience.

We'll give here a very brief overview regarding the property sales contract in the Philippines ; if you want a full checklist, please check our property pack for the Philippines.

What is the Deed of Absolute Sale (DOAS) in the Philippines?

In the Philippines, the key document involved in a real estate transaction is often referred to as the "Deed of Absolute Sale" (DOAS).

This is a legally binding agreement between the buyer and the seller which stipulates the terms and conditions of the sale of a property.

The process typically begins when you, as a buyer, show interest in a property.

You may initially sign a Reservation Agreement along with paying a reservation fee. This is not the final purchase agreement but it does indicate your intention to buy and takes the property off the market for a specified period.

Following this, a Deed of Absolute Sale is prepared. This document is crucial as it officially transfers ownership from the seller to you, the buyer. It includes details such as the description of the property, the agreed selling price, and the terms of payment.

The DOAS is signed by both parties once the payment is completed or as per the agreed terms.

For the document to be legally binding and for the transaction to be official, the DOAS must be notarized.

Notarization is a formal process where a public notary verifies the identities of the signatories and the authenticity of the document.

Regarding deposits, it's common in the Philippines to pay an earnest money deposit when you sign the DOAS. This deposit is typically a percentage of the purchase price (often around 10%) and is considered part of your down payment.

If you back out of the deal without valid legal reason, you may forfeit this deposit.

For international buyers or non-residents, purchasing property in the Philippines comes with additional considerations.

Foreigners are generally restricted from owning land but can legally own condominium units or apartments in high-rise buildings, as long as the foreign quota for the building has not been exceeded.

It's essential to verify your eligibility and understand the specific regulations that apply to foreign buyers.

The process in the Philippines might differ from other countries, especially in terms of property ownership laws for foreigners, the legal formalities involved, and the typical payment terms and schedules.

Each country has its unique legal framework and cultural practices regarding real estate transactions, so it's important to familiarize yourself with these when engaging in property dealings abroad.

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What should be included in the property purchase agreement in the Philippines?

In the Philippines, the property purchase agreement, often known as the "Deed of Absolute Sale" (DOAS), is governed by the Civil Code of the Philippines.

This legal document is essential in real estate transactions and must contain specific elements to be valid and enforceable.

The DOAS should clearly include the following:

Mandatory clauses include the full agreement of both parties on the sale, the capacity to sell by the seller, and the intention to buy by the buyer.

It must also state that the transfer of ownership is absolute, meaning there are no conditions that would cause the seller to retake ownership once the sale is finalized.

Some additional clauses might include:

- Conditions that must be met for the sale to proceed, such as the buyer obtaining financing or the sale of their current home.

- Information about when and where the closing will take place, and who is responsible for related costs.

- Consequences if either party fails to meet the terms of the agreement.

Conditions or contingencies can be included to protect both the buyer and seller.

For example, a buyer might include a contingency that the sale is subject to a satisfactory property inspection. Similarly, a seller might have a contingency that the sale is dependent on finding a new home within a certain timeframe.

The DOAS must be notarized to be considered legally binding.

Notarization is a formal process where a public notary confirms the document's validity and the signatories' identities. This step is crucial for the deed to be registered with the government.

Real estate agents in the Philippines play a significant role in facilitating the transaction. They often help in drafting the initial agreement, negotiating terms, and ensuring that both parties meet their obligations.

However, they are not typically involved in the legal aspects of the agreement.

What's the signing process like?

In a real estate transaction in the Philippines, the signing of the property purchase agreement, typically known as the Deed of Absolute Sale (DOAS), is a critical step.

The process involves several specific stages.

The DOAS is a bilateral agreement, meaning it requires the signatures of both the buyer and the seller.

It's important to note that either "the buyer" or "the seller" can indeed be multiple people.

For instance, if a married couple is buying or selling a property, both spouses need to sign the agreement. The same applies if the property is co-owned by several individuals; all co-owners must sign.

Both parties need to provide certain documents and information.

The seller typically needs to present proof of ownership, such as the title of the property, and any other relevant documents like tax declarations. The buyer, on the other hand, might need to present proof of funds or a mortgage approval if they are financing the purchase.

The signing process usually happens after all terms have been agreed upon, which includes the price, payment schedule, and any other pertinent conditions or contingencies.

The timeline for this can vary depending on the negotiation duration. Once everything is agreed upon, the DOAS is drafted and reviewed by both parties.

While traditionally the signing is done in person, remote signing has become more common, especially in the context of the digital age and circumstances like the pandemic.

If the signing is done remotely, it's crucial to ensure that all legal requirements are still met, such as the need for notarization.

Whether signed in person or remotely, the DOAS must be notarized to be legally binding.

This step usually requires at least one party to be physically present before a notary public. The notary verifies the identities of the signatories and their understanding and consent to the agreement's terms.

There's typically no fixed deadline for signing the DOAS. The timeline is often determined by the agreement between the buyer and seller.

However, once the offer is accepted, the process generally moves fairly quickly to ensure the transaction's momentum is maintained.

Once signed and notarized, the DOAS is valid indefinitely. It remains effective until the property is transferred and all terms are fulfilled.

For the sale to be officially recognized, the DOAS needs to be registered with the Registry of Deeds. This step involves submitting the notarized DOAS along with other required documents, like tax clearances and proof of payment.

Any amendments to the contract after signing are generally not straightforward. Both parties must agree to any changes, and the document may need to be re-notarized and re-registered following any significant alterations.

The timeframe for completing all necessary paperwork and approvals after signing can vary. It often depends on factors like the efficiency of local government offices and the complexity of the transaction.

On average, expect a few weeks to a few months for everything to be fully processed and for the property to be officially transferred to the buyer.

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How is the payment handled when signing a property purchase contract in the Philippines?

Understanding the financial aspects of a property purchase agreement in the Philippines involves several key points.

When you sign a property purchase agreement, typically known as the Deed of Absolute Sale (DOAS) in the Philippines, you are usually required to pay a portion of the total price. This is often referred to as earnest money or a down payment.

The exact amount can vary, but it's commonly around 10% to 20% of the total purchase price.

The typical down payment for a property sale in the Philippines ranges from 20% to 30% of the total purchase price. This can be higher or lower depending on the agreement between the buyer and seller and the type of property being purchased.

Apart from the down payment, there may be other upfront costs associated with signing the sales agreement. These can include notary fees, attorney's fees (if you're using one), and possibly a reservation fee that holds the property for you while the sale is being processed.

Payment is typically made directly to the seller or to an escrow account. An escrow account is often used in property transactions to hold the funds securely until all terms of the agreement are met and the sale is finalized.

The due date for the payment depends on what's stipulated in the DOAS.

Usually, the down payment or earnest money is due at the signing of the agreement, with the balance due at a later date, often upon transfer of the property title or as agreed in the payment schedule.

In the Philippines, property sales are subject to certain taxes.

This includes the capital gains tax, which is generally the responsibility of the seller, and the Documentary Stamp Tax, Transfer Tax, and Registration Fee, which are typically the buyer's responsibility.

These taxes are based on the sale price or the current market value of the property, whichever is higher.

The down payment amount can sometimes be negotiated with the seller. This depends on the seller’s flexibility and your negotiating skills.

If the sale falls through, the refundability of the down payment depends on the terms outlined in the agreement.

If the sale doesn't proceed due to a failed inspection or a financing contingency (and these contingencies were included in the agreement), the down payment may be refundable.

It’s generally expected that the down payment comes from your personal funds.

However, some buyers do use other financing options, but this can be more complex and might require specific arrangements with your lender.

An attorney or real estate agent can help facilitate the payment process, ensuring that all legal requirements are met and that the transaction is conducted smoothly. They can also provide valuable advice on the contractual aspects of the payment.

For the buyer, apart from the property transfer taxes, there are no immediate tax implications.

However, owning property will have implications for your annual property taxes.

For the seller, the sale of the property can have capital gains tax implications, and they are required to declare the income from the sale.

What are the potentials risks and pitfalls?

You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in the Philippines.

In the Philippines, there are specific risks and pitfalls associated with property purchase agreements that both buyers and sellers should be aware of.

Both the buyer and seller have the potential to withdraw from a property purchase agreement under certain circumstances.

However, the ability to do so and the consequences depend heavily on the terms outlined in the agreement, such as contingencies and penalties.

Unlike some other jurisdictions, the Philippines does not typically have a statutory cooling-off period for real estate transactions. Once the agreement is signed, it is generally considered binding unless specific contingencies allow for withdrawal.

If a party wishes to withdraw from the agreement, they typically need a valid reason as stipulated in the contract. For example, a buyer might be able to back out if they are unable to secure financing, provided there is a financing contingency in the agreement.

Similarly, if the seller finds that they cannot legally sell the property or if there are undisclosed encumbrances, this might be grounds for withdrawal.

If one party fails to fulfill their obligations as outlined in the agreement, they can be held liable for breach of contract.

The specific penalties will depend on what's stated in the agreement. It could range from forfeiture of the deposit (in the case of the buyer) to a lawsuit for specific performance or damages (in the case of the seller).

If a party withdraws from the agreement and it's deemed justified based on the contract terms, any money paid (like a down payment or earnest money) might be returned.

However, if the withdrawal is not justified, the withdrawing party may lose any deposited funds or be liable for additional damages.

Real estate transactions in other countries often differ, particularly regarding buyer protections.

For example, in some countries, there is a statutory cooling-off period, allowing the buyer to back out of the agreement without penalty within a specific timeframe.

The down payment percentages, the role of real estate agents, and legal requirements for disclosures can also vary significantly.

Potential risks in the Philippines include issues with the title of the property (such as undisclosed encumbrances), problems discovered in the property after purchase, and challenges related to securing financing.

Buyers should conduct thorough due diligence, including a title search and property inspection.

Disputes can arise over property boundaries, the condition of the property, or fulfillment of contractual terms. These are often resolved through negotiation or mediation. In more severe cases, legal action may be necessary.

During the signing period, if disputes or disagreements arise, parties typically attempt to resolve these issues through negotiation or with the help of their real estate agents or attorneys. If these efforts fail, mediation or arbitration can be sought.

As a last resort, legal action in the courts is an option.

If defects or issues with the property are discovered after signing, the course of action largely depends on what was disclosed prior to the sale and the terms of the agreement.

If the seller failed to disclose known defects, they might be held liable.

However, this can be a complex area and often requires legal intervention to resolve.

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.