Buying Berlin real estate
Berlin Buying real estate has a specific process. Naturally, this process is has similarities to other markets. However, it is important to understand each step in order to avoid unpleasant surprises during a transaction.
Please note : there are specific condition which can make this process faster or significantly slower. In this article we will attempt to describe the usual process of acquiring property in Berlin.
Property purchase – Stages
Their are various main stages of a property purchase in Berlin (and Germany).
- Green lighting of financing
- Search phase (criteria definition, viewings, etc.)
- Reservation of property
- Agreement between buyer and seller (price, terms, financing)
- Creation and validation of deed of sale (Notarization)
- Payment of closing costs (Broker commission, Notary & legal costs, Transfer tax).
- Transfer of property deed by notary
- Payment of purchase price
- Hand over
- Updating of Land register (new owner data).
From the moment a buyer reserves a property to end the process can take 20 days, plus 2 months till land register entry. However, if everything goes as it should the physical hand over could take place after 6-8 weeks.
1 – Pre-approve your finance-plan
Timing: depends on the buyer & lender
First of all steps to acquiring any property is clarifying one’s financing capacity. Some buyers are able to buy fully in cash (this means with savings and not with actually cash money). Yet, most people decided to finance a portion of there purchase with a (bank) loan.
Serious buyers should green-light their finance plan with beforehand. All the more in a popular market like Berlin where the buying pressure is very high.
Logically, a seller will surely favor selling off his property to a prepared buyer. Besides, this will make the job of the notary and the real estate broker much easier.
Quick tip: Pick any property fitting generally your criteria. Present an exposé + all documents. to you lender to get a “pre-approval”. This may save you a lot of stress on the closing of the future final property you find.
2 – Searching for real estate in Berlin
Timing: Depends on the buyer
Here again a major factor, is preparation and definiteness. The job of a good real estate agent is to help buyers define specific criteria and targets for there research. here are some question a good agent should ask you?
- Is the property for you to live in or an investment?
- If investment, are you ok with a currently tenanted flat?
- Which areas, neighborhoods, are you interested in? and why? (ex: school for children).
- How big should it be?
- What kind of budget?
- What kind of operating costs?
- Do you have preference for Altbau or Neubau?
- Are you ok with ground floor flats?
- If the apartment is above the 3rd floor are you ok to walk up?
- Any other elements needed: garage? elevator? bathtub? high ceilings?
- Any “deal breaker” criteria? (ex: bathroom with no window)
Search criteria should be discussed thoroughly (preferable face to face) and prioritized. This process will bring clarity and help focus the search and viewing phase. For more information on operation cost check our article, Operating cost of property.
3 – Reservation of property
Timing: Typically 14 to 30 days. Can be extended.
Once a suitable property identified, the buyer reserves it. Traditionally, the reservation contract allows to block the property for 14 days to 30 days. This process requires a deposit of 1% to 1,5% of the property value of a deposit or lump sum: I.e. it can be anywhere from 500€ to 3,000€ or more.
Meanwhile, the due diligence takes place during the reservation phase. In other words, the buyer inquires more about the property’s state both, physical and financial. Terms and specifics of the transaction takes place then.
If for any reason the buyer decides to pull out, the reservation fee will typically be fully refunded, no questions asked. Most actors on the market refund reservation. Beware if they do not that is a sign for delinquent sellers.
Noteworthy, this phase is extendable for further due diligence, in case for example the bank take a bit longer. In this case, make sure to communicate with the broker/ seller.
4 – Purchase agreement
Timing: 10 days – 3 weeks.
Once (an only once) requested by the buyer, The notary will draft a purchase agreement based on agreed terms between buyer and seller. In Germany, the buyer is responsible for covering the notary & legal costs (1 to 2% of the closing cost). At this point, the buyer is responsible for the notary and legal costs, unless this seller pulls out of the transaction.
Understandibly, the notary as a 3rd party working on a contract should get compensated. However, beware if the seller/broker is forcing this to happen to quick. Legally the buyer must request in writing the Purchase agreement before it is ordered.
Once this condition is fullfilled, even if the buyer’s finance are not in order, or something else prevents the sale from going forward, the notary will invoice for his/her work.
The purchase agreement contains:
- Buyer’s Name and contact
- Seller’s Name and contact
- Broker’s Name and contact
- Notary’s Name and contact
- Description of property
- Closing costs (broker fee, notary fee, taxes)
- Terms of purchase
5 – Signature of purchase agreement
Timing: meeting at notary’s office*.
Buyer, Seller and Real Estate Agent meet at the notary’s office for the signature of the deed of sale (aka purchase agreement, or purchase contract).
*Can be done via proxy in case of long distance purchase. In this case the notary be notified in advance and a valid proxy agreement must be signed by the client, its proxy and the notary.
6 – Payment of closing costs
Timing: after signature of purchase agreement
The broker commission is paid at this moment: The legal & market standard for transactions below 2 million euros si 6% (+ 19% VAT). When transaction are bigger and or a special negociation are done the broker’s commission can be reduced.
Timing: after signature of purchase agreement and later (depending on legal deadline and clerical processing).
Notary fee can be *1 to 2% depending on the notary and type of transaction. In the practice for a residential unit the fee is closer to 1,5%.
In practice, notary costs are divided between notary costs and legal costs coordinated through the notary. First, the actual notary costs correspond to the creation of the purchase agreeement (Kaufvertrag). Second, the other legal costs are divided into 4 to 5 costs:
- Prerecording of the contract in land register approx. (Depends of value of property)
- Extract of the Land register: 15-30€
- Rewritting of the land register to your name (Depends of value of property)
- Deleting old owner from land register: 25,00€
- In case the buyer uses bank financing: there would be: Grundschuldauszug (extract of land register liens).
In this case, the lender (Bank) is recorded in the land register as (temporary) owner until the property is paid up fully. This procedure generates an extra cost.
Finally, the a Deleting the old owner from land register: 25,00€ (like mentioned above).
Real estate taxes Berlin: Transfer taxes
Timing: 2 to 4 weeks after signing of purchase agreeement.
In Berlin, the taxes are 6% of the value of the property.
7 – Transfer of property deed by notary
Timing: can be done before signature of the purchase contract or up to weeks after.
The Notary verifies the all the legal aspects of the transfer of property deed to the new owner (ex: tax liens, and other legal issues).
8 – Payment of purchase price
Timing: After notary has verified validity of transaction (purchase agreeement). In practice, directly after the signature or according to arrangement made in the purchase agreement.
9 – Hand over of “keys”
Timing: Once notary confirms the payment duties have been fullfilled. In practice, can happen the next day after payment of the pruchase price.
10 – Updating of Land register (new owner data).
Timing: 3-9 weeks after signature.