German Justice Minister pushing for changes on broker commissions
Germany’s property brokers are up in arms at what they see is a further assault on their validity and competence, as the German ruling coalition government in Berlin look at further measures to lower the costs of acquiring property for private individuals.
To the fore is the federal Justice Minister, Katarina Barley of the left-of-centre SPD, who is spearheading a drive to see whether the so-called Bestellerprinzip, or principle of “he who orders, pays”, could be applied to the sale of properties. The measure was brought into law in 2015 to apply to the renting of private accommodation, and has shaken up the broker community since.
Since then the SPD, the Green Party and the hard-left Die Linke have all been agitating to extend its application to the buying of property, with the charges payable by the seller and not the buyer.
Throughout most of Germany these brokerage charge are far higher than in most other European countries. When buying a property in Germany, the broker commission generally ranges between 5.95% and 7.14% of the purchase price. In the states of Berlin, Bremen, Hamburg, Hessen and Brandenburg this cost is borne completely by the purchaser; in the remaining federal states the broker commission is generally shared equally by both buyer and seller. Along with the obligatory Grunderwerbsteuer or land transfer tax, a form of stamp duty that can amount to 6.5%, the two charges can add considerably to the cost of buying property.
A €400,000 property in Berlin would incur a broker commission of €28,560 for the buyer, not counting the additional €24,000 Grunderwerbsteuer plus further charges of up to €6,000 for the notary and entry into the land register. Total charges amounting to 15% are not at all unusual (and €400,000 would not go a long way in buying a house suitable for a small family, even in relatively inexpensive Berlin).
Property owner and broker associations are vehemently against the proposed changes. Jürgen Michael Schick, the president of the property association IVD Immobilienverband Deutschland says the measure would simply add a further burden to property buyers, as any seller would simply add the cost of broker commission to the price of the property, which would push up even further the amount of the Grunderwerbsteuer or stamp duty and other costs to be paid by the buyer. “In this case the lawmakers are themselves becoming the drivers of further price rises – and the only beneficiaries. The losers are the taxpayers”, he says.
Schick believes the solution is the reform of the Grunderwerbsteuer, or stamp duty. Since 2007, when the level of the tax was delegated down to the state level from a federal level, the individual states have raised the tax a total of 26 instances, from then 3.5% to up to 6.5% in many states now.
As a highly lucrative ‘soft’ tax that the Länder find it easier to impose than others, without affecting their state transfers as part of Germany’s complicated state subsidy system whereby the strong states support the weaker (“Länderfinanzausgleich”), Schick and fellow property associations such as the ZIA Zentraler Immobilien Ausschuss believe this tax needs to be drastically reduced.
Others, including the owners’ association Haus & Grund, are demanding that the State moves against what it sees as cartel agreements among brokers to keep commissions high. There is too much intransparency in property transactions, they believe, and negotiating the commission downwards effectively impossible. This must be broken up, they say.
The CDU party of Angela Merkel and the liberal pro-business FDP are against shifting the commission to the seller, on the grounds that this would simply push up prices. Instead they favour re-examining the Grunderwerbsteuer to see could this be lowered. The FDP is pushing for the abolition of the Grunderwerbsteuer up to a level of €500,000, but has so far had little success with this, even in the states where it is a junior coalition governing partner. The whole issue was left open in the recent protracted discussions at national level leading to the coalition agreement and programme for government, and is therefore still a matter that the parties will have to resolve among themselves.
Justice Minister Barley remains adamant that in the case of the renting of apartments, the introduction of the Bestellerprinzip on the 1stJune 2015 has greatly benefited new prospective tenants. At the time it caused uproar among the broker community, and indeed Jürgen Michael Schick’s organization the IVD Immobilienverbgand Deutschland confirmed a few short months later that 80% of brokers had suffered a falloff in rental commission. Two brokers even sued the government in the country’s highest Constitutional Court in 2016, but had their claims dismissed by the judges, who deemed the move permissible.