The purchase process of German real estate

1. Preparation
1.1 What is the most important factor when buying a home?
The most important factor that determines the price of a property in Germany is the location. Affordable real estate in a quiet location is often the most popular, and has the greatest value growth.

1.2 New vs old
The choice between new or old is subjective. The prices of an old structure in Germany are relatively low, although the work expenses are high, and the same applies to the maintenance of an old building, which often exceeds the actual price of the property. Because of the 5-year warranty obligation and energy efficiency loans, you don't have to worry about maintenance costs in a building constructed in the last 15-20 years. At the same time, the price is consistently high and the long waiting period is a disadvantage.

1.3 The search for ads
Newspapers and real estate websites in Germany are the most important source when searching for information on properties for sale. The following four websites offer the most comprehensive information on real estate properties in Germany:

www.immobilienscout24.de

www.immowelt.de

www.immonet.de/

www.null-provision.de/

2. The contract

2.1 Contract types and procedures
In accordance with German law, a transfer of property and an assignment contract for a property must be signed by a German notary. Furthermore, notaries are also involved in the execution of the real estate purchase contract and are in touch with the public officials who manage the property registry in which the buyer must be registered as the new owner.  

2.2 Contract parties and documentation
German law sets no legal restrictions on purchase by a foreign company or an individual living abroad. Foreign certificates and notarially certified documents are generally recognized, but must be translated and attached with a notice that certifies that the translation is accurate. This may be an additional certificate as per the Hague Convention, or a consular certificate. 

2.3 Item of agreement
The items of agreement are the exact location, name and address of the property listed in the property registry, should it be part of a larger property. Mortgages may not be independently taken out on properties built on plots of land, and these properties cannot be transferred. Furthermore, parts of the property that have not yet been surveyed cannot be includes as an item of agreement. When executing the contract it is necessary to have the property surveyed and the results documented in the property registry.

2.4 Security
After signing the contract and before paying the full purchase amount, the buyer will be registered as the new owner in the property registry. This so-called priority notice of conveyance is a type of insurance that covers both parties during the transfer of rights. At the same time, the notary will receive some relevant documentation, including the negation certificate (in which the municipality ensures that it does not intend to use the property for public use), permits (that protect the rights of both parties before purchase), and the termination paperwork. Once the property is no longer encumbered with any debt and all conditions have been met, the buyer will inform the notary of the payment date. Once the seller and the creditor have received the payments, the notary will certify the purchase agreement and register the new buyer as the owner in the property registry.

3. Costs
All costs and taxes, as well as notary costs, are generally paid by the buyer. There may be additional costs for the mediation fee (including compensation for architects, land surveyors, and legal counsel). Notary costs are generally about 1.5% of the purchase price. 

4. Taxes

4.1 Land transfer tax
The tax rate is between 4.5% and 6.5% and depends on the respective state. Only after payment of the land transfer tax is the buyer registered in the property registry as the owner, and they thus receive the ownership rights.

4.2 Property tax
Property owners are obligated to pay a property tax for their property every year. This tax is calculated by the size and use of the property and real estate, and varies from one property to the next.

4.3 Income tax, etc.
During the speculation period certain regulations apply which stipulated that all profit earned through a sale of the real estate within the first 10 years are considered personal income, and must thereby be taxes (§ 23 Income Tax Act). Should the sale occur after the 10-year period, no taxes are levied from the profits gained from this sale (§ 23 Income Tax Act). If three or even more properties are resold within 5 years, these transactions are considered commercial property trade and are thereby taxed accordingly. If it is a rental residence, rental income that exceeds the basic tax-free allowance of the personal income must also be taxed. As German property prices are stabilizing, this is not a market for short-term investors.