This is how you really make buying a house cheaper

Attorney General Barley wants to redistribute brokerage costs to make home purchases cheaper. Other steps would be much more promising.

Notary and court fees, development costs, land transfer and property taxes - building costs a lot, even without building.

Wohnen has become expensive in many cities – that much is certain. But what can you do about it? Justice Minister Katharina Barley (SPD) has a new approach: She wants to check whether the additional costs of the purchases can be reduced. Depending on the federal state, these amount to up to a seventh of the purchase price. Above all, she wants to start with the brokerage costs. She wants whoever hired the broker to bear the brokerage costs. This is called the “ordering principle”; it has been introduced for rentals since 2015 – and it is a success among politicians. But not with everyone else.

Brokerage fees are not uniformly regulated nationwide. In Berlin, Bremen, Hamburg, Hesse and Brandenburg, they can account for up to half of the ancillary costs. A functioning ordering principle would be most effective here, because here the buyer pays the brokerage fee alone. In other federal states, where this is usually divided between buyers and sellers, they only make up 30 percent.

It seems to work with rentals

In principle, lower brokerage costs could therefore help to reduce ancillary costs. However, there are no reliable statements as to whether the ordering principle works when it comes to brokering rental apartments. Tenants sometimes report excessive clearance requirements, for example for fitted kitchens, and express the suspicion that this is intended to bring in brokerage fees.

In contrast, the German Tenants’ Association recently stated that the ordering principle works in 96 percent of the cases, even if there were attempts to circumvent this at the beginning. Apparently, however, it has cost the realtor business because landlords have increasingly become active themselves.

Buying is different

Similar effects would probably also be expected with the introduction of the customer principle for real estate purchases. However, the requirements are different. On the one hand, brokers have been hired more often by prospective buyers than by prospective tenants. Since they would still pay the broker after the introduction of the ordering principle, nothing changes.

Far more important is that the brokerage fee has so far been shared in eleven federal states. The introduction of a consistent ordering principle could even put additional strain on buyers. Since there are more real estate buyers than tenants, it could be that some buyers will not be impressed by the new regulation. Overall, the ordering principle could be far less effective for property purchases than it is for rents.

Real estate transfer tax is the better approach

If the federal and state governments actually want to reduce ancillary costs, they have a much more effective lever: the real estate transfer tax. This is regulated by the federal government; the tax rates vary from country to country and are between 3.5 and 6.5 percent. It is to be borne by the buyer alone and can therefore make up more than half of the additional costs.

But for the federal states, the real estate transfer tax has become an important source of income, especially in the real estate boom. The volume has almost tripled since the low in 2009 to around 13 billion euros in 2017. Since 2009 only Bavaria and Saxony have not increased the real estate transfer tax.

And the willingness to lower or even abolish the tax seems low. It was only in June that the Bundestag’s finance committee rejected an application by the FDP to allow the states to set an exemption of up to EUR 500,000 per person. On the contrary, the finance ministers of the federal states even want to close tax loopholes.