The reluctance to hire a lawyer
While professional real estate investors would never purchase a property without their legal counsel, most private buyers think twice before hiring a lawyer. Although buying a home is the most significant event in the life of many Germans, they are often reluctant to spend extra money on lawyers’ fees.
To cut out the lawyer’s support is done easily. Many private buyers feel safe as every sales and purchase agreement requires notarization by a German notary, who is legally bound to ensure inexperienced and amateur investors are protected. Also additional information could be found in the internet and hence allows for some self-help to buyers.
In this blog we offer a step-by-step explanation of the home buying process in Germany. We offer our biased view on the Q: Is it really safe to buy a home without the help of a lawyer?
The buying procedure and legal support
Let us have a closer look on the buying procedure of a private home (flat or house) in Germany.
• Searching for a target
The first stage is finding the right target. Usually, this is done by the buyers themselves, or by agents on behalf of the buyers. We are in the sellers market hence agents focus primarily on the supply side and a single agent does not offer a variety of choices. Even if you engage an agent, the search job remains time-consuming and requires some patience.
At this stage, a buyer does not need a lawyer. However if you are signing an agreement with a real estate agent, you might ask for a quick check of the document by a lawyer. Even though the seller usually engages an agent, the seller wants the buyer to pay the agent’s fees.
• Due Diligence
The subject matter of a technical Due Diligence is the technical status of the property. It shall disclose any technical defects or damages. Usually, an architect or a real estate expert can be hired to visit and assess. If you take out a loan for the purchase, some banks ask you also for an evaluation of the property. That can be done by the same specialist.
A legal Due Diligence is concerned of legal circumstances surrounding the property: For example, if the home is a house, the Due Diligence would clarify whether there are any encumbrances, or any disputes with local authorities and neighbours. It would also involve a review of:
- the “Grundbuch” (real estate cadastre)
- the “Baugenehmigung” (construction licence)
- the “Bebauungsplan” (construction plan)
If you buy a flat, it is important to review:
- the previous minutes of the “WEG Versammlung” (assembly of home owners)
- the “Teilungsordnung” (plan on the house split into flats) and
- the “Nebenkosten” (running costs of the flat).
The technical check-up is a must for many buyers of a home that is not new or newly refurbished. By contrast, buyers are sometimes not conducting the legal check-up at all, even though it is usually easy. The buyer can even review the documents on his own, when he is familiar with such documents. Sometimes, the broker/agent might offer support here though being in a conflict of interest. The notary’s job is to safeguard that the legal ownership (title) is passed to the buyer, and not to check whether the property got any legal flaws. Therefore, it makes often sense, to engage a lawyer for this task. He knows where to look at and is a real time saver. To omit the legal Due Diligence completely is risky.
If you consider buying a home that is being build (or refurbished) at the time of the purchase, it is even more important to conduct the legal Due Diligence. A technical Due Diligence shall be done when the building work is completed and property is handed over to you.
A non-resident in Germany usually requires additional information on the tax consequences of the home buying. If the buyer is a non-resident and would like to lease out the property, the establishment of a certain legal structure might help to optimise taxes from the future income.
Neither the notary nor the real estate agent will give you a binding legal advice in this matter. Therefore, if you consider an investment in a home and want to lease it out, legal advice on the taxes and additional costs involved is mandatory in most cases.
• Financing/ Bank loan
The procedure of receiving a loan from a bank is standardised and the buyer is usually not able to re-negotiate the terms and conditions of the bank. The bank requests a certain amount of information on your financial status and the property.
A lawyer might support you with the financial plan (including one-off, and running costs of the property), choosing a bank, explaining the terms and condition of the bank loan, and collating the documents requested from the bank etc.
A sophisticated buyer might do all by himself; a lawyer is helpful for those who feel unconfident, or are time constrained.
• Sales and Purchase Agreement
The sale and purchase agreement is the most important document in the transaction. The notary engaged by the seller and paid for by the buyer usually provides the first draft.
According to the law, the notary shall act as an impartial middleman between the buyer and the seller and explain the legal consequences of the document.
In practice, the legal consultancy rendered by the notary is often disappointing. In particular, if the transaction is rather standard, one cannot expect detailed legal guidance. Frequently, the parties are not even able to talk to the notary directly before the signing date. Some notaries refuse to hand over word documents and are unwilling to discuss legal concerns. If one party engages a lawyer this might lead to even more reluctant attitude as the privilege of the inexperienced and nonprofessional ceases to apply (see above).
In many cases, it is therefore better if a lawyer is not directly involved in the negotiation via the notary and supports the client in the background. He can explain legal consequence of the draft and make recommendations that the client can forward to the notary in his own name. If the Due Diligence revealed any legal issues, the sale and purchase agreement shall deal with these. If the purchase requires the seller to make a renovation, or other building changes, a lawyer can review, explain and suggest new wordings, if necessary.
The agent (via its in-house lawyer) cannot replace the services of a lawyer hired by the buyer. The agent is not independent; she/he generally serves the seller and wants to see the deal go through, since agent’s commission is success based.
• After signing
After the signing of the purchase agreement, the notary will control the entry of a priority notice in the cadastral register, the observation of the payment terms and the entry of the title into the register.
Except for more complicated purchase structures, one does not need professional help at this stage. Nevertheless, the buyer who is not confident might still ask for legal support.
The Services of Navigator2Law
Navigator2Law allows potential buyers to navigate their home purchase from the property search to signing. Buyers can define what services are required in their individual case and get a fixed price offer tailor made for their needs. Call us on 0049 (0)89 72639713 or send an email to email@example.com