Since the demand for real estate has gradually increased in recent years, the use of estate agents has also become more relevant. Another aspect is the use of real estate as an investment. If you intend to buy or sell through an estate agent, you will find valuable information here about the estate agent’s commission: its amount, how it is calculated, tax deductibility and much more.
What is a broker's commission?
When it comes to brokering an apartment, a house or a plot of land, an estate agent is often used. In order to remunerate the estate agent for his service, he receives a fee: the estate agent’s commission. This is paid by the buyer or seller. The way in which this is done is regulated by law. You can find interesting details about the reform of estate agent commission in our detailed article on this topic.In 2020, there was a reform of the estate agent commission. Previously, it was customary for the seller to agree a commission-free service with the estate agent. The broker’s commission was paid in full by the buyer. The new law on estate agent commission stipulates that the same payment conditions must apply to both buyer and seller. So if the seller is exempt from paying commission, this also applies to the other party, the buyer. Since 2020, commission costs for private purchases have generally been split 50/50 between the buyer and seller.
How high can the broker's commission be?
The amount of the broker’s commission is only regulated by law in the case of letting. This depends on who the client is. The client is the person who has placed the order with the estate agent. This can be either the landlord or the tenant. If the tenant is the agent’s client, the maximum brokerage fee is two net cold rents. Value added tax is added to this. However, if the landlord is the client and therefore the customer, there is no statutory regulation. In this case, the commission amount is freely negotiable and can be three times the net rent. To ensure that the landlord is not left to bear the brokerage costs alone, a common method is to pass on part of the costs to the future tenant. This can be in the form of a compensation payment for a fitted kitchen, for example. Officially, landlords like to use the option of recouping brokerage costs via the rental agreement with the tenant. However, this amount may only account for a maximum of 50 percent of the commission costs paid by the landlord.
There is no uniform legal regulation on how much broker’s commission is due in the event of a real estate purchase. Different rates apply in the individual federal states. During negotiations, buyers, estate agents and sellers are usually guided by the standard rates in the federal state. In the federal states of Bremen, Hesse and Mecklenburg-Western Pomerania, the standard estate agent’s commission is 5.95 percent. In Hamburg, 6.25 percent is paid and in all other federal states 7.14 percent is the usual broker’s commission. Since the reform of estate agent commission in 2020, the estate agent commission can be split between the two parties – buyer and seller. This is always done in equal shares.
How high is the usual estate agent's commission when buying real estate in Berlin?
In Berlin, the broker’s commission is a maximum of 7.14 percent. It should not be forgotten that the amount of the commission can vary, as it is freely negotiable. Before the 2020 reform, buyers still had to pay a broker’s commission of 5 percent, as they had to pay the full commission. Now, the broker’s commission is 3.57 percent because the usual amount of commission is split. The law stipulates that the commission is split equally between the buyer and the seller. This can, for example, be two percent or four percent each. As a rule, the commission is 3.57 percent, i.e. half of the usual estate agent’s commission of 7.14 percent. For the buyer, this procedure in Berlin and Brandenburg is a great relief, as the broker’s commission in Berlin still had to be paid in full by the buyer in 2021.
How is the broker's commission calculated?
Before the purchase contract is concluded, the buyer, seller and estate agent agree on the amount of the estate agent’s commission in the form of a percentage value. In order to calculate the exact amount of the broker’s commission, the purchase price as agreed in the purchase contract is taken as a basis. The purchase price is then multiplied by the percentage value to obtain the amount of the commission.
The formula is therefore:
Purchase price x percentage / 100 = amount of the broker’s commission
Sample calculation for the sale of a detached house in Berlin:
- Purchase price: € 350,000
- Broker commission: 7.14 %
- Calculation: 350,000 € x 7.14 / 100 = 24,990 €
If the buyer and seller split the commission, each party pays half, namely €12,495.
Can the broker's commission be negotiated?
It is generally permitted to discuss the amount of the commission with the estate agent. Whether the agent’s commission is negotiable depends on the respective region and the location of the property. The demand for the property can also influence the amount of the agent’s commission. If you notice that the property has been on the market for a long time and is difficult to sell, as a potential buyer you can try to negotiate with the estate agent about the commission amount. You can also consider splitting the commission costs equally. If, as a seller, you want to offer a property that is easy to sell at a good price, you have a good chance of agreeing a lower commission with the estate agent.
When does the broker's commission have to be paid?
The period within which the broker’s commission must be paid is set out in the brokerage agreement. The payment period depends on the agreement between the broker and the buyer, which may be the seller or the buyer. The estate agent has the option of issuing an invoice for his commission immediately after the notary appointment at which the contract is signed. In this case, the buyer usually has one to two weeks to settle the invoice in the form of a single or double commission. However, it can also happen that the estate agent allows a certain amount of time to pass before presenting his invoice. You should be particularly careful here, because if you let the deadline for settling the invoice pass, this can have a negative impact on the purchase process. In the event of non-payment of the broker’s commission, the broker is entitled to claim his commission from the property.
Following the 2020 reform, the order in which commission is paid is also regulated by law. It is possible for the seller to officially bear the sole payment obligation, but to pass on a share of the broker’s commission to the buyer. In this case, the seller is obliged to settle the entire invoice. Only after this has been verified is the buyer obliged to pay his share. In the case of a double commission, where the buyer and seller share the commission equally, no specific order is stipulated by law.
When is the broker not entitled to commission?
There are situations and circumstances that render the brokerage contract ineffective and the brokerage commission null and void. For example, if the contract was concluded verbally and not officially in writing, the broker is not entitled to commission. The same applies if the broker does not inform the buyer of his right of revocation, as required by law, and the buyer does not receive the revocation instructions in writing.
All of the conditions listed here must be met for this to be a legitimate brokerage contract and for the broker to be entitled to claim his brokerage fee:
- The brokerage agreement must be officially concluded in writing
- The broker must be able to prove his brokerage activity, for example in the form of a brokerage
- The successful conclusion of a rental or purchase agreement must take place
- The contract was concluded on the basis of the broker’s mediating activity
- No defect could be identified that could have led to the invalidity of the contract
As soon as one of these conditions remains unfulfilled, the entire brokerage contract is null and void and the broker is not entitled to the brokerage fee.
According to the 2020 broker reform, the broker is also not permitted to make agreements with one party regarding the amount of the broker’s commission that do not apply to the other party. Under Section 656c of the German Civil Code (BGB), for example, the broker is not permitted to agree with one party to work free of charge and then have the other party pay the broker’s commission afterwards. In this case, the broker cannot collect the commission from the party from whom he hopes to receive payment.
Can the estate agent's commission be deducted from tax?
As a general rule, properties sold or purchased by private individuals are not tax-deductible. If you purchase a property as an investment, you can declare the commission costs as incidental acquisition costs and deduct them from tax. To do this, add the broker’s commission to the purchase price and write off the broker’s commission over the years in the form of straight-line depreciation. As a landlord, you can deduct the estate agent’s commission from your tax bill when renting out a new property. This is because, under certain conditions, the tenant can claim the estate agent’s commission as income-related expenses for tax purposes.
Conclusion
The 2020 estate agent reform has made things much easier for buyers. Instead of having to pay the entire estate agent’s fee, the buyer now only has to pay a maximum of half of the agent’s commission. Knowing the usual percentage of the commission and being able to calculate the exact amount is nevertheless worthwhile. At 3.57 percent, Berlin’s brokerage fee is average for Germany. However, as there is no legally prescribed percentage, the value can vary.
