Brokers braced for slump after introduction of new law
The law on rental commissions in Germany changed fundamentally on June 1st with the introduction of the “Bestellerprinzip”, or agency principle – in other words, he who orders, pays.
Prospective tenants in Germany have traditionally paid 2.38 months ‘cold’ rent in the form of commission to a property broker to secure an apartment, although the broker was mandated by the landlord, at neither risk nor cost to the landlord. In this, Germany has long been out of kilter with other markets, where the normal practice is for the commission is paid by the landlord.
According to Jürgen Michael Schick, the vice president of the national property association IVD, competition among servicers is bound to increase, and not all brokers are going to survive the heightened pressure – closures and layoffs are inevitable, he believes.
“The introduction of the agency principle will fundamentally change residential brokerage in Germany,” says Schick. “But it has nothing to do with the quality of brokerage and is not the right tool to eliminate the ‘black sheep’ from the market. As many landlords will now forego brokerage services altogether, competition among servicers will increase.”
Germany has about 38,000 registered property brokers, who collectively earn €17.1bn in commissions annually. The lawmakers expect a fall in this turnover of €310m, or an average loss across all brokers of €8,200 each.
A survey carried out by market research group Talocasa among 300 German property brokers showed that 84% of brokers expect the new law to lead to less instructions from landlords to rent a property. 59% believe the law will lead to lower commissions for themselves, with 21% saying they fear for their very existence. Most accept that the changes are likely, however, to lead to a better image for their profession.
The responses differ markedly between independent freelance brokers and those who work for the bigger franchise chains such as Engel & Voelkers or Re/Max, with the latter group much more optimistic about their chances (69%) and a more positive image for their industry than the independents (43%). Similar trends for further training and education are also highlighted by the study, with 29% of the franchise brokers planning further study and training, as against 13% of the independents.
Both groups are united on one thing – 71% are convinced that conditions for tenants will worsen as a result of the new law, with 76% believing that landlords will somehow find a way to claw the money back from their tenants if they have had to pay the commission to the broker themselves.
Another survey, by property portal Immowelt, showed that 86% of property brokers said they expect many landlords to take charge of rentals themselves. With the new regulation, landlords will weigh different brokerage options which will lead to increased competition against a shrinking market.
A survey by the Center for Real Estate Studies at Berlin’s Steinbeis University showed that landlords are willing to pay €245-€560 per brokered flat, while other surveys indicated 1x net cold rent, well below current commission rates. It will take some months for the effects of the law to make themselves felt, but it is a mini-revolution for Germany all the same.