Law change sees shakeout in German broker industry

Germany's ruling coalition government in Berlin has brought in two significant changes to the domestic residential housing market in this legislation period. The first was the Mietpreisbremse, or rental cap, which limits the amount a landlord can increase the rent on a new lease to a prescribed percentage.

The other new instrument is the so-called Bestellerprinzip, or "He who orders, pays" in respect of a broker's commission. This breaks with the almost universal tradition in Germany that the landlord commisions the agent to lease the property, but the tenant pays the brokers' commission – essentially a win-win situation for the landlord.

The previous status quo, where the tenant paid the commission in every case, even when the broker was offering a property into a market with high demand, such as in university cities, and offered no - or very little - added-value, has been in no small measure to blame for the miserable reputation that the broker 'profession' enjoys in Germany

Six months after the introduction of the new law, and in the absence of any in-depth research study, it's still too early to say definitively what effect the measures are having on the broker industry. The idea of course was to ensure a fairer market and ultimately lower the burden on tenants in finding new accomodation.

Jürgen Michael Schick of the Property Owners Association IVD, whom we often meet and quote in these pages, takes the understandable view that the new law is hostile to landlords, and represents a further ideological blow against the real estate industry by the current government. Instead of being the 'honest broker' as before, he argues, brokers are now practically compelled to act unilaterally in the interest of their paymasters, the landlords.

Although there is anecdotal evidence that the amount of broker commission has fallen under the new regime to as low as one month or one-and-a-half month's rent (plus VAT), instead of the previous at least two months rent (plus VAT, i.e. 2.38 months rent), Schick argues that the apparent lowering of the commission is nonetheless a Pyrrhic victory in the battle to benefit the consumer i.e. the tenant.

One reason is that the landlord is now frequently tempted to let out the apartment himself, cutting out the middleman. This frequently means more new lettings being sorted out 'under the table', with the exiting tenant directly finding a substitute. Or the landlord simply decides to sell the unit, instead of re-renting it.

But perhaps the biggest drawback from the potential tenant's perspective is this: no broker can now offer a range of apartments from his stock – he has to organise, each time he's asked, an available apartment from a landlord that is not being offered by any other broker elsewhere. Schick says this has drastically reduced the amount of choice any broker can offer to his potential client. Germany's strict laws defining who has first offered a unit for rent, and the likely possibility of losing a commission on a deal because another broker has offered it first, has driven several reputable brokers to quit offering any apartments at all to tenants, instead concentrating on pure sales.

When the new law was introduced last year, critics warned that brokers would try to get around the restriction by invoicing the landlord a smaller amount for their services, but making up for it by demanding a higher amount for taking over existing furnishings, e.g. built-in kitchens, which are not normally included in a new lease. Germany's Tenants Association (Mieterbund) says it has not noticed any abnormal wave of new complaints about this dodgy practice since the change came into effect.

The amount of property brokers in Germany is not known exactly, since barriers to entry into the business are minimal (almost exceptional in Germany, known for its stiff requirement for examinations and certificates in almost every other line of activity). The official body IVD has more than 6,000 members, but there are certainly tens of thousands more who've sprung up since the onset of Germany's property boom and may be dealing with property on a part-time or inofficial basis. Most have no official training or relevant professional knowledge.

These are the people who will have been hardest hit by the change in the law since June 2015. A study carried out among 1100 brokers by industry trade journal Immobilien Zeitung, online portal Immobilienscout24 and consultancy group Immo Media Consult confirmed that life since had changed for them dramatically; 84% of respondents confirmed that their turnover had fallen considerably, while 47% of respondents claimed their very existence was now in peril.

It does indeed look like the 'black sheep' and amateur, unqualified advisors are being driven out of the industry, in favour of those who are prepared to gain basic qualifications, which the government is in the process of establishing, as a minimum hurdle for those who wish to call themselves 'property brokers'.

Existing brokers will then have to sit for the local Chamber of Commerce exams and up their degree of professional competence and certifiable experience. All in the interests of higher standards across the board, says Schick of the IVD.