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How to determine the value of a newly built or an old property? Or What’s a good price for my house?

by General

This is a question everyone asks as soon as it comes down to buying a house or just looking at house and apartment adverts. What is the house “really” worth? The answer is as simple as it sounds: whatever you or another buyer is willing to pay. Unless the price is regulated that’s the way it works: demand and supply. The real question though is: how can you determine a fair price so that you are not ripped off.

 

Real value (Sachwert) and capitalized earning value (Ertragswert)

Real value

For both, a new house as well as an old property the basis of the valuation is the price of the property including the price of the land it is built on.

capitalized earning value

This type of valuation is based on the net earnings minus the total expenditure – all multiplied by factor (based on the region, between 12 and 40). This is most often applied with rental properties.

Market value appraisal (Verkehrswertgutachten)

The market value of a property (or just a piece of land) is the current, and also the future achievable selling price of the real estate. Most often a certified expert creates the appraisal. He needs to be independent in order to be believable for all interested parties. These could be a buyer, a seller or a bank who might be giving you a loan based on that appraisal.

The market value does not necessarily reflect the resale value but definitely can be used as an indication.

Other Options

Other options to determine a fair price of the house is to check what houses sold for in the recent past – in that particular region. You can check the committee of valuation experts (Gutachterausschuss) of your region to check the prices of houses sold in the past. They are independent and will have several categories (single homes, apartments, multi-apartment buildings, etc). Just looking at adverts of the past only makes 80% sense, as the prices advertised are not necessarily the prices paid by the buyer. But this could be a first indication.

Resale value: main driver is Performance (Wertentwicklung)

The appreciation of the property is the real driver of a resale value over time. You can differentiate between intrinsic and extrinsic factors for the performance.

Intrinsic: especially modernization effort like new bathroom, insulation, additional balconies etc. will increase the value of the property.

Extrinsic: External factors like infrastructure can increase or even decrease the value of the real estate. Optical fibre, public transport can increase the value, while a chemical plant being built next door obviously will decrease it.

What does it mean for you as a buyer: Look at local politics, if you’re buying… ask neighbors on what’s being planned over the next couple of months and years.

Want to know the fair value of the house you want to buy?

Knowing the evaluation of the house you want to view will give you two major advantages:
1. A point to start (or finish) your negotiation
2. Knowing what the bank will give you as a loan
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Ancillary Cost while buying a house in Germany

by General

A common question I get is: How high are ancillary cost while buying a house in Germany?

Buying a house is a big financial as well as emotional investment. Therefore, you as a buyer first check whether you can afford the asking price of the house or apartment. The (negotiated) asking price is (most of the times) covered by a home loan supported by a bank.

There are other costs involved while buying property in Germany. These ancillary costs (Kaufnebenkosten) like land transfer tax, realtor, notary, and court charges can easily add up to 15% of the negotiated price of the real estate for the buyer.

Let’s break it down:

Land transfer tax

The land transfer tax (Grunderwerbsteuer) is a percentage of the buying price of the property. The % depends upon in which state the property is located and can range between 3.5% (Berlin) to 6.5% (NRW): e.g. If the house cost 500.000EUR ; land transfer tax in Berlin would amount to 17.500EUR and the same house (3.5%), if purchased in Cologne (which is in NRW) you would owe 32.500EUR (6.5%) land transfer tax. After the notary has sent the signed purchase contract to the Finanzamt, they will (most of the times,) within 2-4 weeks send you a letter with an invoice and kindly ask you to pay the tax. Only if you pay, your name will be registered as the owner of the property.

 

Real estate agent fees / realtor charges

If a real estate agent / realtor (Makler) was involved in selling you the house, he is allowed to charge you for that service – even if it just was to send you the advert (!). Charges are a percentage based on the negotiated and agreed upon price. It can vary from region to region and can go upto 7.14%. The brokerage commission is – in most cases – equally split between the buyer and the seller – whereas you do not get to see the contract which the seller has aligned with the realtor. These fees are negotiable (but in the current market situation, most often accepted as is by the buyer.

Notary & court charges

The purchase of real estate needs to be documented and notarized in Germany by law. As long is the agreement has not been processed by a notary, it has no validity. Even if there’s a written agreement between the realtor, the seller and the buyer – it has no meaning at all, as long as it has not been processed by a notary (Notar).

Fees of the notary can be close to 1% of the documented purchase price – to be borne by the buyer. This can be negotiated by the parties, though. On top of this, court charges are also part of the ancillary cost. These are levied to adapt the land register. These amount to about 0.5% of the purchase price.

Optional

For a newly built property or a property which is being built for you, you might want to consider a surveyor (Baugutachter), which will be charged on effort basis. You can also negotiate a fixed price if you like. Charges vary from region to region.

For an older property you might want to consider a building appraiser who might come in handy to evaluate the building, its structure and ensure that you know the risks from a building perspective.

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