The issue of who should pay brokers’ commission fees for residential lease transactions has long been a vexing question in Germany – but any real attempts to try to change the status quo have always failed. The incoming tenant ends up picking up the tab – generally about 2.4 times the monthly rent, not including VAT. It is a source of regular aggravation to wide swathes of the population, who frequently remain highly sceptical of the value of the service actually provided by the agent, apart perhaps from placing an ad in the internet, and opening the doors to prospective tenants.
Now SPD and Green Party politicians in several federal German states have tabled bills to change the rules for the payment of broker commissions on residential leases, and have brought them to the lower house of parliament (Bundesrat) for ratification.
They are looking to amend the law so that, in future, apartment seekers would be obliged to pay broker commissions only when they have engaged the broker first themselves. Known as the “Bestellerprinzip” or “He who orders, pays”, the amendment envisages that an apartment seeker would be liable for commission only when he has signed a written agreement with the broker, who in turn has not previously been engaged by the landlord to let the apartment. In other words, the apartment-seeker is the first to engage the broker in respect of a specific apartment.
The politicians are trying to shift the burden of the broker’s commission onto the landlord, who invariably engages the broker to act on his behalf, although the broker fees are paid by the tenant – a German arrangement that often baffles visitors from other countries. The German Tenants Association, a powerful consumer lobbying group, says “It’s not acceptable that brokers operate on behalf of and in the interests of landlords, but the tenant pays the commission.”.
In contrast, the national real estate brokers association IVD has long argued that the tenant would end up paying in one form or another anyway, hence any attempts to change the current regulations will be fruitless. Professor Stephan Kippes, the head of IVD’s market research institute, sees the current protest movement as a lost cause, pointing out that in areas of Germany with no housing shortage – such as in parts of the eastern states – the matter resolves itself with the landlord absorbing any broker commission, as they’re happy to rent out their accommodation.
The IVD for its part argues that the draft resolution is flawed, and the best solution is to raise the barrier for the minimum level of service to be provided by the broker, along with demanding higher professional qualifications and real estate knowledge for acceptance into the profession (there are currently no qualifications required of a property broker in Germany). Furthermore, says the IVD, the only sustainable solution to a long-term housing shortage is to build more housing, and to foster the right political environment to further more housing construction.
Other brokers protest that, with a housing shortage in Germany’s desirable larger cities, the market would simply get tighter for genuine apartment seekers. They counter-argue that, even if the law is amended, landlords would simply amend the rent upwards to compensate for their extra costs. The SPD and their candidate for chancellor to challenge Angela Merkel in the September elections Peer Steinbrück have also produced new proposals to further cap the increase in rents permissible above a locally-acceptable limit. There won’t be an easy solution to this, it looks like. We suspect this debate has a lot further to run.