Gross vs. Net Pricing

Pricing conventions make trade more efficient since they allow parties to talk in the same language. Following such conventions also allows buyers to compare different goods easily. In US groceries, for example, supermarkets are mandated to display the price per ml/oz, making life easier for shoppers.

In the PH, the most used convention for pricing RE properties is "gross" pricing [i.e., the selling price inclusive of capital gains tax (CGT) and broker's professional fee (BPF) and exclusive of doc. stamp tax (DST), registration fee (RF), and transfer tax (TT)]. Developers use this convention; they quote prices exclusive of "handover/transfer/other" fees (the DST, RF, and TT).

Another convention used is "net" pricing. This means that the buyer shall shoulder all taxes and fees, and the price quoted is what the seller ultimately gets.

More often than not, sellers know how much they want to take home but don't know how to price the property. To derive the "gross" price, divide the target net proceeds with:

.89 - if the BPF is 5%

.90 - if 4%

.91 - if 3%

The math is quite simple: = 100% - 6% CGT - __% BPF

[Disclaimer: This formula only works for "capital" assets and only if the selling price is greater than the zonal value.]

Despite the ease of converting "net" prices to "gross," some sellers refuse to do so because:

1. They use it as a marketing gimmick to make their property look more affordable.

2. The sellers aren't sure what taxes the sale will be subjected to.

This is why buyers must be careful with properties priced "net." There's a chance the property sale will be subjected to VAT, and the seller wants the buyer to shoulder it.

Take-Away:

There's nothing wrong with using "net" pricing. For example, in the shipping industry, there are accepted pricing conventions where the seller handles all the fees (i.e., "CIF"). It is quite important to indicate "net" in the title to avoid misleading buyers.

As a buyer, it's safer to assume that "net" properties will be subjected to VAT. To get the "gross" price divide the figure by 0.8125% to get an APPROXIMATE "gross" price.