There’s a debate raging at the moment over who should pay the estate agent’s fee in a residential property transaction in Germany.
Unlike in the UK or the USA – or indeed most of Europe and the western world – in Germany it is generally the buyer who pays the agent’s commission. So who’s right, and who’s wrong? There are strong arguments on either side and I’ve set them out below in a non-biased way along with some comments.
IF THE SELLER PAYS
If the owner of the property pays, the agent would clearly be acting in the seller’s interest to get the highest price. At the same time, it would lower upfront costs for buyers and make it easier for people to get on the property ladder. A win-win situation?
There is an argument that more homeowners would be likely to sell privately if it meant avoiding the agent’s commission. It must be said that those who already do sell privately tend to make a bit of a mess of the preparatory paperwork and it’s an issue that would need to be addressed as it causes delays and annoyance for everyone involved.
Owners selling privately have a lot more work to do in preparing their property for sale and incur a number of upfront costs which are usually borne by the agent – photography, floor plans and property portals being the obvious ones. But sellers must also arrange the paperwork for the notary and also for the buyer’s bank, which does require some procedural knowledge – which people mostly don’t have.
You’ll note that we haven’t yet talked about the time required to handle enquiries, carry out viewings, follow up on potential interest, gather feedback and review progress. Then there is negotiating the sale direct (which the vast majority of people simply do not like doing), followed by arranging the contract terms and then chasing the transaction right through to completion, dealing with any legal complications along the way.
Click here for a checklist of what happens in the sales process: https://www.yourplaceberlin.com/faqs-for-sellers/what-are-the-steps-in-selling-a-property-in-germany/
Anyone with a job and a life might find the hours and effort something of a burden, not to mention a huge distraction from their working day, which is, I think, why most people use an agent.
Given how most private listings currently look, it’s clear that private sellers do seek to reduce their upfront costs. Your Place advertises on over 100 German websites and on 12 international property portals and I can’t imagine (and have never seen) anyone paying upfront to list heir home on all of them; it just isn’t feasible. They will pick one or two.
Private sellers also tend to replace professional photography with dreadful pictures from smartphones and to use basic room measurements instead of floorplans. This cost-cutting shifts extra effort onto buyers, not only in tracking down every property that is for sale, but also in dealing with inferior imagery and details when working out what to go and see.
But would sellers really turn away from agents in droves and take on all the work themselves? That depends on whether they were able to simply add the cost of estate agents fees to their sale price. If they were, most would probably continue to use agents and, seeing as buyers currently pay the fees anyway, that doesn’t really change much from today.
However, it might be an obstacle to the argument that less cash-rich buyers could finally get on the property ladder. It is quite possible that lenders won’t want to lend money on a price that includes estate agent’s fees, taking the view that it effectively over-values a property. That would mean the buyer would have to make up the difference between the lender’s valuation and the agreed sale price.
So the only real scenario that would save buyers upfront costs would be one where homeowners have to pay the agents’ fees and swallow the entire cost out of their sale price, which may indeed entice them away from estate agents but then we’re back to the mess that private sellers make!
AND IF THE BUYER PAYS…
It’s argued that German homeowners overwhelmingly use estate agents because buyers currently pay the commission. The sellers are getting something for free and they can go about their daily lives instead of doing all the legwork. Not a bad deal.
But if the buyer pays the commission, who is acting for the sellers to get them the best price? Well, a simple anomaly of the German system is that agents do work to get the best price for the seller, and that the buyer effectively pays for that privilege. It might sound very strange to those from other lands, but it is the way it is and it works as well as the other way around.
Because sellers don’t currently have to take fees into account, they are left simply with choosing the estate agent they feel most comfortable with and who they find the most impressive, approachable, or professional. Those are really the most important factors when choosing whom to sell your property. Money can pollute the decision making process, so removing it keeps things clean.
Ultimately, and barring an enormous shift in the mindset and generosity of German homeowners, the buyer is going to foot the bill, whether by paying the agent’s commission direct or by paying a few percent more on the sale price.
As an estate agent I can’t say I mind which side the fee comes from, and neither do I believe that homeowners will turn overnight into private sellers. Anyone with a full time job would struggle to do all that is required without seriously impacting their time both in and out of work. However, what might be the best argument is: what makes life easier and is less work for both buyer and seller?
With more work and significant upfront costs for homeowners when selling privately, the argument is quite clear. If buyers were also forced into working harder to track down suitable properties, it looks like the current system also works in their favour.
So it seems that, taking all the above into account, the buyer paying the agent does get the upper hand. But what do you think?