Padding

"Padding" is the act of adding an arbitrary commission to the seller's target net proceeds for a sale of a RE property. This is commonly done for raw land in provinces with unclear land valuations.

For example, a seller wanted to sell parcels of land in Tanay, Rizal and wished to net Php100 Mn. Ahentes typically would offer their services and claim they have buyers (who, in truth, are other ahentes who claim they have buyers). These ahentes market the same property for Php200 Mn, aiming to pocket the difference between the selling price, the seller's target net proceeds, and other fees (e.g., Capital Gains Tax).

Among brokers' fiduciary duties is to inform sellers of current market prices and let them benefit from those valuations. Brokers should only earn a percentage (PH standard is 3% to 5%) of the gross selling price. Conversely, buyers should benefit from any discount on the price.

If, after informing the seller that the property was worth Php200 Mn, he still insists on just getting Php100 Mn, the broker should simply gross the figure up (divide by 89% to account for 6% CGT and 5% BPF) to get the selling price. No rational seller would forego a property for significantly less than its worth.

99.9% of the time, these transactions don't push through. The ahentes usually get as far as making the seller and buyer meet. However, one party usually discovers that they're being shortchanged and call off the deal.