Equity

Equity is a payment concept that refers to the cash portion a buyer pays in installments on top of a reservation fee—either to a developer (pre-selling/RFO) or to a seller in assume-balance/pasalo deals—before bank or Pag-IBIG financing takes over.

Definition

In Philippine real estate, equity is the installment-based cash portion of the purchase price, separate from the reservation fee and the eventual bank or Pag-IBIG loan. For pre-selling or RFO units, it is paid to the developer during the construction or turnover window; for assume-balance/pasalo or resale deals, it is paid to the seller to cover the difference between the negotiated price and the assumed loan balance. Terms are set in the Contract to Sell or deed of assignment and must align with the project’s License to Sell under PD 957 and buyer protections in the Maceda Law.

Key Components

• Amount: commonly 10–30% of Total Contract Price for primary market; variable in pasalo/assume-balance to cover the spread over the outstanding loan.
• Terms: monthly or milestone-based installments defined in the CTS, payment schedule, or deed of assignment.
• Proofs: official receipts and updated ledgers (developer) or notarized receipts/acknowledgments (seller) needed for loan take-out and due diligence.
• Timing: runs from reservation date until target loan take-out or near Ready for Occupancy; in pasalo, aligns with bank consent and loan assumption.
• Consequence of default: subject to grace periods and refunds under Maceda Law for CTS; governed by the deed and bank consent for assume-balance deals.

How It Works

1. Buyer signs a reservation and CTS (developer sale) or deed of assignment/assumption (pasalo), locking in equity terms.
2. Equity is paid in installments per the Payment Schedule or agreed milestones.
3. Developer issues receipts for primary market; sellers in pasalo provide notarized acknowledgments while bank consent is processed.
4. Before turnover or assumption, buyer completes equity and secures bank/Pag-IBIG approval; documents are prepared for take-out or loan transfer.
5. On take-out or assumption, the lender pays the developer/satisfies the existing loan, and the buyer begins amortization.

Pros & Cons

• Pros: Spreads down payment over construction; locks in price; may include early-payment discounts.
• Cons: Cash outflow before occupancy; penalties for missed installments; exposure if financing is later declined.

Real-World Application (Philippine Real Estate)

• Brokers explain equity timelines for both developer sales and pasalo/assume-balance deals to set expectations and avoid default.
• Use Payment Tracking to monitor due dates and receipts; align CTS or assumption milestones with Payment Schedule.
• Validate a valid License to Sell for primary market, and ensure pasalo deals have lender consent and clear Tax Declaration/assessed value records.
• Pair equity plans with inventory status in Property Listings to prioritize units with manageable timelines.

Related Terms

• Contract to Sell
• Maceda Law
• PD 957
• Payment Schedule
• Ready for Occupancy

References

• PD 957 – Subdivision and Condominium Buyers’ Protective Decree (LawPhil)
• RA 6552 – Realty Installment Buyer Act (Maceda Law) (LawPhil)