RESERVATION AGREEMENT, CONTRACT TO SELL , DEED OF SALE & WHY THEY ARE NEED IN THE PURCHASE OF PROPERTIES
The Reservation Agreement pertains to the agreement that focuses on the terms and conditions on the payment of reservation fee. This is actually the first step that is necessary because it stipulates that when the buyer does not proceed to sign the contract to sell, or for whatever reason does not pursue with the purchase, the buyer agrees that the reservation fee will be forfeited. Without this agreement, a buyer who can make a reservation can demand a refund when a buyer decides not to push through because there is no legal basis for the forfeiture. Besides, the Reservation Agreement is the basis in which the Contract to Sell shall be made leading to the more important contract - the Contract to Sell. In brokerage term, Reservation Agreement is called Earnest Money – a small amount of money usually few thousand pesos or 2% to 5% of the Total Contract Price to show interest to purchase on the part of the buyer and that the property can be put on hold until such time the Contract to sell or Deed of Sale is ready for signing.
The Contract to Sell - pertains to the entire Total Contract Price stipulating the terms and conditions of payment and the description of the unit purchased. This is the contract that will be used as legal basis on the right of the buyer to demand a DEED OF SALE when the property is fully paid. But the Contract to Sell is not enough basis for the transfer of title to buyer’s name. It will only serve as a legal document that will compel the seller / developer to execute the Deed of Sale when the property is fully paid and/or when all conditions in the contract to sell are complied with.
The Deed of Sale or Deed of Absolute Sale, is the final contract that will be required by the Register of Deeds for the transfer of ownership. In case of purchase by installment, this will come later when the unit is fully paid; this deed of sale will be the basis for the issuance of the Transfer Certificate of Title (TCT) in case of lot purchase or Condominium Certificate of title (CCT) in case of Condominium unit purchase to be transferred in the name of the buyer which is the final and strongest proof of ownership.
As a matter of procedure, the developer or seller requires that the buyer shall submit TIN (Tax Identification Number) because this is required by BIR before any transaction for tax payment is entertained and even in the purchase by installments, TIN has to be submitted in advance in preparation for the time when the installments would reach a level that the tax to the local government is required. Payment of 25% of total contract price is the level in which tax is required to be paid. The developer will pay this in a form of withholding tax but needs buyer's TIN. The buyer’s licensed broker, through his licensed agent should be able to secure this TIN at the local BIR office by submitting a copy of the CONTRACT TO SELL.
As a buyer of Philippine property, it is very important that your licensed real estate broker through his/her licensed agents, is knowledgeable about this very important process of documentation so he can guide you through the process. This is very important even in cases wherein the developer does everything of the paper works and simply charge processing fees because there are employees of developers who are not efficient enough to go through these processes and will heed to constant and effective follow ups of a knowledgeable licensed real estate broker.
Author: Engr. Manuel R. Arengo Jr.
Licensed Real Estate Broker No. 1185