When selling a property, it has been common practice for the buyer to bear the costs of the estate agent. As a rule, the seller commissions the services of an estate agent. The expert can also act on behalf of a buyer, for example if the buyer places a search request. With a few exceptions, the buyer of a property has paid the costs to date. If they placed a search request before the purchase, they even bore the costs twice: they paid the estate agent for their search request and paid the estate agent’s costs after the purchase, which the seller had commissioned. The German government has now put an end to this practice with a reform. Since December 23, 2020, buyers and sellers have had to share the estate agent costs. It does not matter who commissioned the service. The background to this is the fact that ancillary costs have become a significant item when purchasing a property. As the bank does not finance these ancillary costs, they have to be borne out of equity. The new law means relief for the buyer of the property. Sellers, on the other hand, will have to bear the costs associated with the sale of their property.
Mitigating ancillary costs when buying real estate as a declared goal
The aim of the new law is to reduce additional costs when buying a property. The background to this lies in the amount of the estate agent’s commission, which usually amounts to several thousand euros. The costs are based on the purchase price. As a rule, they amount to three to six percent, sometimes even seven or eight percent. This means that with an average purchase price of EUR 300,000 for a property, the buyer pays an estate agent’s commission of between EUR 9,000 and EUR 20,000. Added to this is VAT of 19 percent. The new law is a relief for buyers, as they only have to bear 50 percent of the costs. The seller, on the other hand, will have to bear higher costs. The new legal situation significantly reduces the factor of ancillary costs. The impact on the real estate market could be positive, as buyers with low and medium incomes in particular will be able to afford residential property more easily.
What is broker commission paid for?
The real estate agent is a specialist who knows the market particularly well. This applies not only to regional, but also to national real estate sales. An estate agent can be commissioned by the buyer of a property or by the seller. He or she provides both parties with comprehensive advice and other services.
Services for the buyer
The buyer of a property contacts the estate agent when looking for a property. They have the option of explicitly submitting a search request to the estate agent. In this case, they are offered properties that match their search request. The advantage is that they do not have to study advertisements themselves to find the right property.
Services for the seller
The seller commissions an estate agent with the sale of a property. Various services are conceivable in this context. These are agreed between the seller and the estate agent. For example, the estate agent can have a valuation of the property carried out. This serves as the basis for calculating the purchase price. In addition, the estate agent prepares the exposé, which is made available to interested parties for information purposes. This contains all relevant information about the property. The estate agent can also take care of communication with interested parties. This takes place by e-mail or telephone, but also in a personal meeting. The seller can also instruct the estate agent to arrange viewing appointments. This allows the seller to concentrate on his work and other things during the time-consuming sales phase of his property.
Advantage for customers inexperienced in the sector
Buyers and sellers who are unfamiliar with the market are always making the right choice by hiring an estate agent. Even the definition of the purchase price can be flawed due to a lack of experience. A real estate agent is able to correctly assess the value of the property. In addition, their experience allows them to organize the entire process of selling the property efficiently and satisfactorily for both parties.
The broker’s tasks are extensive and time-consuming. For this reason, the broker is entitled to a commission. An alternative term is brokerage fee. As both the buyer and the seller benefit from the service, the German government has initiated a change in the law and now also obliges the seller of the property to pay the costs.
What is meant by broker commission reform?
The reform of estate agent commission, which came into force in the final days of 2020, is a binding regulation that will apply to all real estate sales in future. Until now, there was no such binding regulation. For decades, it was common practice to charge the buyer of the property the full estate agent’s fees. A few years ago, the government issued a recommendation to split the costs between the buyer and the seller. This was to be done on a voluntary basis. This recommendation has not been implemented.
The new regulation on the invoicing of estate agent commission is no coincidence. It is part of the housing and rental package agreed by the federal government on August 18, 2019. Now, the distribution of estate agent costs is no longer based on voluntary arrangements or statutory regulations issued by individual federal states. The regulation is uniform throughout Germany. The legal standard has been enshrined in the German Civil Code and can be found in sections 656a and following. Buyers can refer to these paragraphs if they are to be charged the full cost of the estate agent’s commission in future.
With the amendment to the law, the federal government has introduced a new regulation on the distribution of estate agent commission costs. Private property buyers in particular will benefit from this. They can look forward to financial relief, as they no longer have to bear the entire estate agent fees alone.
Reform of broker commission: What exactly is changing?
The reform of the broker commission brings two major changes.
Distribution of costs between seller and buyer
The distribution of costs between buyer and seller has been revised. In the case of private property purchases, the seller must now pay half of the estate agent’s commission. Previously, the seller was able to charge the buyer the full costs. The new legislation does not apply to commercial sales. The law also has no relevance to the brokerage of rental apartments. The buyer’s principle applies here: whoever has commissioned the estate agent must bear the costs alone.
Text form requirement
The new law stipulates that brokerage contracts must be recorded in writing in future. A verbal agreement is not valid. However, there are no specific requirements in terms of form. It is possible and legally compliant to record the agreement in writing by e-mail.
Reform of broker commission: Determining the distribution of costs
With regard to the new legislation, many clients of real estate agents are wondering who will actually pay the estate agent’s costs. The first step is to establish who commissioned the estate agent.
Commissioning of the broker by buyer and seller
There is a situation where the estate agent receives an order from both sides. The buyer wants to buy a certain property and has put out a corresponding order. The seller offers a property for sale that meets the buyer’s expectations. The estate agent therefore works for both the buyer and the seller. If the sale goes through, the estate agent may charge his costs to both parties. Each party bears 50 percent of the costs.
In this context, it is important to know that the estate agent may not work for one party free of charge. For example, if he offers to accept the buyer’s search request free of charge, he may not demand any remuneration from the other party, i.e. the seller, if the brokerage is successful.
Commissioning of the broker by the buyer or seller
The situation is different if the estate agent has only been commissioned by one party. In this case, the client pays the full brokerage costs. This also applies if the seller commissions the estate agent to broker the property. Previously, he was able to transfer the costs in full to the buyer.
The client, i.e. the buyer or seller, can agree to share the costs with the other party. However, this is only legally compliant if the other party’s share of the costs is a maximum of 50 percent. Since the law came into force in December 2020, it is therefore no longer possible for the seller of a property to transfer the entire brokerage costs to the buyer of the property.
It is important to know that the client can only charge half of the costs to the other party if he has paid the costs. It is therefore necessary to pay in advance in order to be reimbursed half of the costs.
Reform of broker commission: Text form requirement for the cost allocation agreement
Since the law came into force in December 2020, a so-called text conformity requirement has applied to the drafting of brokerage contracts. This states that it is mandatory to draw up brokerage contracts for the brokerage of purchase agreements for apartments and single-family homes in writing. Previously, verbal agreements were permitted. These are now no longer possible. Agreements made with a handshake are also no longer valid.
There are no legal requirements regarding the type of written record. It is therefore possible to record the agreement in an e-mail.
Broker commission reform: Who do the changes apply to?
The new regulation of the law applies exclusively to consumers, but not to entrepreneurs. This means that the brokerage fee for commercial purchases and sales can still be borne by one party. Private buyers, on the other hand, can look forward to some relief, as in the past they had to bear the costs of the estate agent’s commission alone. Private sellers, on the other hand, will face higher costs, as they were able to charge the brokerage fee to the buyer in the past.
Commercial sales excluded from the law
If the seller is not a consumer but an entrepreneur, the law does not apply. This means that, as before, an individual agreement is required as to who bears the brokerage costs. In this case, the agreement can also be such that the buyer bears the entire brokerage costs, as before. It is also possible to split the costs within the framework of such an agreement.
Status of the broker does not matter
The status of the broker is irrelevant for the validity of the statutory provision. It is therefore irrelevant whether the estate agent is only occasionally active on the market and has another main occupation or whether he or she pursues the business full-time. The law must be applied to every sale of a private property.
Reform of broker commission: What are the advantages?
The reform of the estate agent commission brings some advantages. For example, there is now a uniform regulation that applies to all federal states. The adoption of the federal law means that it is no longer possible for the individual federal states to adopt different regulations. As a result, it is possible to structure the brokerage of real estate purchase contracts in a uniform, transparent and legally secure manner. The law also brings an improvement for property buyers. Previously, they had to bear the costs of the estate agent’s commission alone. Otherwise, it was not possible to purchase a property. This created a kind of predicament from which buyers are now protected. It is to be expected that the reform of the law will lead to greater fairness on the market. Professionalism in the purchase of apartments and detached houses will be increased. Real estate agents who work in a serious and service-oriented manner and who have good training will prevail on the market in future.
Conclusion
Some politicians believe that a reform of the estate agent commission was overdue. The cost of buying a property has risen significantly in recent decades due to the market situation. On top of this, private buyers have to cover the additional costs from their own capital. As a rule, it was not possible to include them in the building loan. The new law eases the burden on buyers, which is to be welcomed in principle. In addition, with the new law, the German government has created a regulation that is clear, easy to understand and uncomplicated.
However, the introduction of the law has not been entirely without criticism: Sellers of real estate are more heavily burdened by the payment of half of the estate agent’s commission than before the law came into force. It is therefore possible for them to add their share of the commission to the purchase price. This would not relieve the burden on the buyer and would result in properties becoming even more expensive. Only time will tell whether this practice will prevail in the private sale of residential properties.
In addition to the law on sharing the costs of estate agents, a further change to the ancillary costs of buying a property could be on the cards: A reform of the real estate transfer tax is an alternative that has already been brought up for discussion.
