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The one where we have to talk about German bureaucracy
Somehow the world isn't entirely certain whether Germans are very efficient or not. In buying real estate, you can't be sure either.
Something really fascinating keeps happening to me: I am abroad currently and no matter where and when smalltalk veers into COVID territory - people are not surprised that we have vaccinated humans and pets of all ages at record speed and very soon, just because, well, we are Germans. We are supposed to be good at this stuff! Making plans, setting them into motion, engineering things and processes. Well, I hate to break it to my foreign friends, it’s not that easy. If you haven’t lived under a rock the last couple of months, chances are you will have seen glum news stories about Germany not reaaally getting its act together in the early days of the vaccination campaign against the Coronavirus. The majority opinion as to why overwhelmingly points into the direction of bureaucracy. So while Germans sometimes are efficient and fast and eerily good at making things work - sometimes the very same qualities seem to have the exact opposite effect. There’s a ten years delayed debacle of an airport to every shiny Mercedes Benz. A David Hasselhoff to every Heidi Klum.
No one would really be surprised to hear that the above mentioned bureaucracy comes into play in a BIG way when buying real estate. Which is why there are many very considered steps to be taken should one be interested in owning a slice of these bureaucratic lands. We have talked about the preparatory phase here - but if you thought that was it … LOL. The fun is just beginning. Without further ado: the 13 steps to buying real estate in Germany - after you have already taken 37 other steps before that.
Let’s recap: You have decided on a budget and found a property within said budget. There were no terrible surprises and the bank seemed as keen as you. After compiling a bunch of documents and comparing a bunch of mortgages conditions, you made an offer. Shocker: your offer was accepted! You race towards the finish line of buying real estate - and then … come to a screeching halt. Is this a dream? Things are moving so slowly all of the sudden? Who are all these people? And what are they talking about?
Yeah, bureaucracy is at work and your patience will be tested. This is also the phase in which a notary becomes your friend. A notary, you ask, what is that? Interestingly, while this lawyer on steroids is a normal occurrence in Germany, many of my international friends seem confused when I mention this mythical figure that you will end up spending quite a bit of time with. Wikipedia says “a notary is a person authorised to perform acts in legal affairs, in particular witnessing signatures on documents.” Sounds good, let’s just go with that.
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So where have we left off? Right - with your decision to pick a bank and their mortgage conditions. You are good to go. The good news after the horror scenario I just described: This stage is time consuming but pretty predictable - it follows clearly outlined steps. In pretty chronological order, it goes something like this:
After having whittled down on banks and mortgages, you will have to submit an official mortgage application which usually takes a bank 3-10 working days to process. Some banks may have your property value appraised by an external expert in addition to their internal systems which could add a bit of time as well. But once all questions are answered, you should hopefully get final approval.
With the approval in place, the bank sends two important documents to you: the mortgage contract and the Grundschuld-Bestellungsurkunde, a long German word for “land charge form”.
You sign the mortgage contract - which is the starting gun for ...
Remember the notary? (of course you do, they made an appearance just a few short paragraphs ago). As the buyer, you get to select a notary of your choice which will make it easier to become friends (and that’s what we are striving for, simply because you want someone by your side to answer your many, many questions). They create the first draft of the purchase contract and send it to you and the seller. They also need the land charge form. Should the bank’s snail mail be too slow you can always ask them for a digital version that’s sufficient for the notary to do his or her job. Don’t freak out, it will all be fine, just ask the notary. Walking you through this is literally their job.
Once you have the contract draft, all parties take some time to check it and most likely engage on some back and forth for amendments. We always had a couple of weeks to do this which is nice. The length of this cooling off period is a legally mandated two weeks if one of the two parties is a private person and the other is a legal entity. Once everyone's happy, you set a date for signatures.
Plan to visit the notary’s office for the signature in person as the notary will read out loud the entire contract, which is another slightly odd German legal requirement. It does give you a chance to ask additional questions, though, and make last minutes edits if needed.
Next up, the notary will arrange for you to be registered as the future owner in the land registry. This notice (the technical term is priority notice of conveyance or Auflassungsvormerkung) implies that you are the only and legitimate buyer and protects your right to have the title of ownership transferred to your name 8-16 weeks later. From the date of signature, all property liability gets transferred over to you.
With your purchase properly notarized, you are in for a whole series of payments which make up the closing costs of any real estate transaction:
Your real estate broker will send an invoice
The notary will send an invoice
Grunderwerbssteuer will need to be paid - this is property transfer tax (with amounts varying from state to state) and you will be notified about this payment via a letter which will make the What? When? Where? a lot easier. This might take a few weeks, though. Only after this tax has been paid will the land registry be registered in the land charge.
If you thought this flurry of bills was depressing - there’s still the whopper of a payment waiting for you, thank you very much, the actual purchasing price. The notary will ask you to pay the amount in full about 6-8 weeks after signing the contract. Typically, and this is how we did it, you pay the down payment from your own account and the bank transfers your loan amount to the seller's account directly. You will need to fill out a purchase order form that authorises your lender to make that payment.
Once the seller has received the full payment, you can arrange for a handover of keys etc. as you will be granted full access. There’s actually a few things to ask and consider at this moment - but let’s do a separate post on that some other time to not make all of this more complicated. Take note, though, you only become the lawful owner after you have been entered into the land registry (which will take time, see above). The notary will submit all necessary documents and oversee this step for you.
Remember the Grunderwerbssteuer from step 8? Once this is paid, the tax office will notify the notary, triggering a clearance certificate to be issued.
Clearance certificate in hand, the notary will instruct the land registry to change the property's ownership title to your name.
Last step, I promise: Pay the land registry fee (~0,5% of purchase price) to the German land registry. You have unlocked the final step.
Congrats, you have made it. After several weeks of blood, sweat and paperwork, you have purchased a property in Germany. We never said it would be easy. We hope you will be very happy. Last but important step: drink champagne or a similarly celebratory beverage of your choosing. And if you are still up for a little puzzle - we have hidden a non-German celebrity in this newsletter.
Next time, on Rente aus Stein: Maths for those who might have hated maths! How to really dig into the financials of a great investment.
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We are not lawyers (sadly) and as such can’t give you legal and/or tax advise. We are simply telling our story in the hope that it’s inspiring to you.