2020-10-08 | The new brokerage law in Germany.
12th Live Event | Meet the Expert
The new brokerage law in Germany. What you should know as a buyer or seller.
Interview with the expert: Lawyer Sven R. Johns
Subject: The new brokerage law 2021 will come into force on December 23, 2020. All new brokerage contracts that are concluded from this point on must comply with the new commission regulations. These regulations include that the seller and buyer must each pay one half of the commission if the real estate agent works for both parties. Also, many flexible commissions that the previous brokerage law allowed will now be prohibited. (https://datenschutz.immobilien/buch-maklerrecht-2021/)
In the live chat on October 27, 2020, lawyer Sven R. Johns and CEO Achim Amann discussed the following topics:
- What agreements are required with the seller?
- What kind of contract do real estate agents have to conclude with buyers?
- What does an effective commission notice look like in the exposé under the new brokerage law?
- How does the brokerage contract with a seller have to be phrased under the new law?
- Which agreements with sellers and / or buyers no longer work under the new law?
- Where does the scope of the new brokerage law end?
About the expert: Lawyer Sven R. Johns
The main focus of Sven R. Johns’ practice is real estate law, especially brokerage law and everything that relates to it. He has more than 20 years of experience in all legal and practical areas relating to real estate. He worked as an advisory lawyer for a leading association in the real estate industry and was the general manager of the German IVD real estate association until mid-2012. In addition, he held a board position in the European umbrella association for real estate professions CEI for 18 years.
His journalistic activities as co-editor of the yearbook “Real Estate”, author of various specialist books and for real estate industry magazines and online media, ensures attention and in-depth knowledge of all important trends and developments in the real estate industry.
Sven R. Johns is a speaker at seminars and specialist conferences, at the → Immobilienverband IVD, of which he is an honorary member. He also speaks at at specialist real estate academies. Sven R. Johns works closely with the → ZEB Business School , where he also teaches.
What will change for the buyer at the end of December?
The law says that when an estate agent enters into a contract with both parties to the subsequent purchase contract, i.e. both the buyer and the seller, both parties must agree to pay the same amount of commission. This means that when the real estate agent enters into the purchase discussion of the property with the owner, the real estate agent will negotiate with the owner that he pays half of the commission and the buyer pays the other half. In Berlin, this probably means that the customary commission of 6% plus VAT will be split, so that it will be 3.57% for the seller and 3.57% for the buyer. The brokerage contract will then presumably state that the owner pays 3.57% commission incl. VAT in the event of success and the exposé will state a buyer’s commission of 3.57% incl. VAT. Up to now, it was common in Berlin for single-family houses and condominiums to be offered with a purely external commission of 7.14%.
Are there possibilities for owners not to pay a commission?
The intention of the legislator is to protect the buyer. In future, the buyer should not have to pay more commission than the seller. This must somehow be enshrined in law and the legislator has done this in various ways and, in my opinion, has closed all possible loopholes. That’s why my very clear recommendation to all real estate companies is to pay attention to this, otherwise you run the risk of not getting any commission at all in the end. First of all, the law states that both parties must agree to pay the same amount of commission. If the broker works for one party free of charge, he must also work for the other party free of charge. Furthermore, a waiver given by the broker to one party also works in favour of the other party (e.g. a kickback to the owner). Moreover, the waiver rule cannot be deviated from by contract. This means that even if the buyer signs that he acknowledges that he will pay more commission than he has to, this is not a valid contract. Tipster commissions also count as a circumvention offence.
What changes will the new Real Estate Agents Act bring to the market?
A certain “stinginess is cool” mentality also exists with regard to brokerage commission and there have always been attempts to save commission. The question is whether it makes sense to sell a property without an estate agent in order to save the commission. […]
Is there anything to consider in joint transactions?
Joint transactions are not an issue for owners, but concern brokers among themselves. An estate agent can cooperate with other agents and increase his own multiplier effect by asking fellow agents in networks and associations whether they have suitable clients for a property he is offering. Now the question is whether anything changes for the commission agreement under the new brokerage law. If 2 estate agents operate with different commission rates, they do not comply with the core idea of the law, namely that both parties are obliged to pay the same amount of commission to the estate agent. So if the seller were to pay 0.5% and the buyer 5.5% and the two brokers then split the commission between themselves again, I believe that this would be an act of circumvention. However, we still have to wait for case law on this.
How will the commission regulation be handled with property developers / investors?
There are some new regulations on brokerage law. For example, all brokerage contracts for single-family houses and condominiums will be subject to text form for both buyers and sellers in the future. Another regulation states that if the buyer is a consumer, the rule with the commission split in half applies. This means that if the seller is a property developer, the commission must still be split in half if the buyer is a consumer. The legislator thinks very strongly in terms of the buyer or consumer and wants to help these buyers, as consumers, to lower the ancillary costs when purchasing the property.
When is the buyer’s commission due? Is it true that the buyer only has to pay his share of the commission after the seller has demonstrably settled his share?
The buyer’s commission becomes due when the notarised purchase contract becomes effective. Many real estate agents will stipulate this point in time with their buyers by including a note in the exposé: “3.57% buyer’s commission earned and due upon notarisation”. This means that a due date has been agreed and if they do not object to it, it is deemed to have been agreed and then they practically pay when the deed is notarised. There is now an issue circulating on the internet around the question of proof of payment of the commission. In most real estate purchases, this rule will not apply. This regulation, with the proof of payment of the commission by the seller, only applies if an agreement once made by both sides has been changed beforehand. Assuming that an estate agent has agreed on a purely internal commission with an owner and in the end wants to transfer part of his commission to the buyer, this is only possible if both parties pay at least the same amount. Only in this case, i.e. if such a commission agreement is subsequently changed, must the seller prove that he has paid his share of the commission to the agent and only then can the commission be charged to the buyer.
Is it not allowed to sell commission-free for the buyer in the future if one receives an internal commission from the seller?
The real estate agent can agree a purely internal commission with an owner and does not then have to split the commission equally between the two parties. If the real estate agent is completely remunerated by the seller, he is the unilateral representative of the seller’s interests. The legal regulation we have been talking about so far, that both parties undertake to pay the commission in the same amount, is then not given at all.
Do you think that property prices will rise so that the seller ends up with a zero-sum game?
Do you also look there, what price increases have we seen on the market? Are they driven by commissions? Are properties in North Rhine-Westphalia or Bavaria 3% more expensive because the seller has always paid half of the agent’s commission? Pricing on the market is a game of supply and demand. You see that every day, not only on the stock market, but also in property prices. In Berlin, far too few flats are being built and that’s why rents can rise, because there is a huge demand. It’s the same with condominiums and single-family houses. As long as demand is high, the “adequate” market price will be found. Incidentally, it is already the case today that if a property goes on the market at a moon price, no prospective buyers will be found. It is only when this price drops that the first people start to show interest in the property. Real estate companies and owners who start with moon prices end up with less than they originally wanted, this has also been proven by various studies. So let’s leave the church in the village, prices don’t rise because of the commission.