The new legally regulated sharing of commissions!

Just in time for Christmas, from December 23rd 2020 there will be a new uniform and legally binding division of commissions for all federal states. On May 14th 2020, the Bundestag (German Parliament) approved the law on distribution of commissions for real estate agents who have provided assistance to buyers for the purchasing contracts of condominiums and single family homes. Until now there has not been any uniform regulation on commission payments for buyers and sellers. In many federal states a commission sharing was already in effect (3.57% per party), though in some states, including Berlin, Brandenburg, Hesse, Bremen and Hamburg, the commission costs were paid solely by the buyer.

In the following explanation, we will give you a brief insight into the new “principle of double commission” for whom and when it applies.

 

As with many things in life, everything is not the same for everyone, including the new law of commission sharing. This law aims to distribute more fairly the commission costs for private buyers (consumers) when purchasing rented or owner-occupied single family homes and condominiums. In the future, the commissions will be divided at 3.57% of the purchase price. However, there are also two exceptions, namely when the seller assumes the commission payment in full and the property is offered to the buyer commission-free or the customer instructs the real estate agent to initiate a search. In this latter case, the real estate agent would explicitly look for a property for the prospective buyer which does not exist in the agent’s portfolio and then only have the buyer pay the commission. The prospective buyer must still be able to be informed, from the advertisements, who will receive the commission for the purchase.

In the event of commission sharing, the real estate agent may act simultaneously for the buyer and the seller. Dividing the costs is therefore justifiable. Many sellers may now be considering – why should I hire a real estate agent if it is going to lower my proceeds as I also must pay the real estate agent? Until now real estate agents have advertised to work without commission and this will no longer be permitted in the future – thus separating the from the chaff from the wheat. Now more than ever, real estate agents must concentrate on their services, offering an all-round package which stands out from the competition. Some of the “black sheep” or casual real estate agents will disappear from the market. Selling real estate is a complex business, fraught with many small or larger problems. Therefore, it is worthwhile for a seller to hire a real estate agent as the cost is less than the possible claims for compensation or an incorrect purchase price calculation.

The new law does not apply to construction sites, apartment blocks or commercial property when the buyer is not an individual person. In this instance the free commission agreement remains applicable.

If you would like any further information on this subject, please contact us. We will be very happy to advise you.