Understand the Kaufvertrag

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When it comes to buying real estate in Germany, making sure you fully grasp the property sales contract is essential.

Indeed, not fully understanding the document you will sign can lead to financial losses, including the forfeiture of deposits, payment of penalties, unexpected costs, legal expenses, and potential poor investment decisions.

We've heard countless stories of people making costly mistakes when signing their property agreement in Germany. We want to help you avoid the same experience.

We'll give here a very brief overview regarding the property sales contract in Germany ; if you want a full checklist, please check our property pack for Germany.

What is the Kaufvertrag in Germany?

In Germany, when you're involved in a real estate transaction, the central document you'll encounter is the "Kaufvertrag," commonly referred to in English as the property purchase agreement.

This agreement is essential for the sale and purchase of property, and it's much more than just a formality.

The Kaufvertrag outlines all the critical details of the transaction. It includes information about the buyer and seller, a detailed description of the property, the purchase price, and the terms and conditions of the sale.

This document is legally binding once it's signed, meaning both the buyer and the seller are obligated to fulfill their respective parts of the deal.

For the agreement to be legally effective, it needs to be notarized.

In Germany, notarization is a formal process conducted by a notary, who is a legal professional.

During this process, the notary reads the entire contract aloud, ensures that both parties understand the terms, and then oversees the signing. This step is crucial because, without notarization, the purchase agreement isn't legally valid.

The notarization also serves as a protective measure for both parties. It ensures that the terms are clear, agreed upon, and legally enforceable. This process helps prevent misunderstandings and disputes later on.

If you're an international buyer or a non-resident, there aren't any special regulations specifically for purchasing property in Germany.

However, you might face more challenges in terms of securing financing, understanding the legalities, and navigating the process in a foreign language. It's wise to work with professionals who have experience in these types of transactions.

Typically, the Kaufvertrag is signed during the later stages of the purchasing process. Before signing, you should have already viewed the property, negotiated the price, and possibly obtained pre-approval for a mortgage if you need one.

Regarding deposits, in Germany, it's not common to pay a deposit when you sign the purchase agreement. Instead, the payment terms, including the full purchase price, are outlined in the agreement.

You'll usually transfer the funds after the agreement is signed and notarized, often with specific dates or conditions outlined in the contract.

Compared to other countries, the process in Germany is quite formal and regulated, particularly with the notarization requirement. In some countries, the process can be less formal, and agreements might not require official notarization.

The emphasis on notarization in Germany provides an additional layer of security and clarity for both parties involved in the transaction.

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What should be included in the property purchase agreement in Germany?

In Germany, the property purchase agreement, or "Kaufvertrag," is governed by various laws, with the Bürgerliches Gesetzbuch (BGB), Germany's civil code, being the primary one.

This agreement must include specific details to be valid and legally binding.

A standard Kaufvertrag should contain the following mandatory elements:

In addition to these mandatory clauses, several optional clauses might be included, depending on the specific circumstances of the sale:

- A clause giving someone (often a tenant) the first opportunity to buy the property if it goes on sale.

- These could include conditions like the sale being contingent on the buyer obtaining financing or selling their current property.

- Addressing any environmental assessments or issues related to the property.

Regarding contingencies, these are conditions that must be met for the contract to proceed. Common contingencies might include the buyer securing a mortgage, the property passing an inspection, or the sale of the buyer’s current home.

The Kaufvertrag must be notarized to be legally binding.

In Germany, a notary, a legal professional, performs this role. They don't just witness the signatures; they ensure both parties understand the contract, verify identities, and register the sale with the land registry. The notary plays a crucial, impartial role in the transaction.

Real estate agents in Germany are involved in facilitating the sale but don't have a direct role in the legalities of the Kaufvertrag. Their primary responsibilities include marketing the property, arranging viewings, and negotiating terms between the buyer and the seller.

However, they do not have the legal authority to draft or notarize the Kaufvertrag.

What's the signing process like?

In Germany, the process of signing a property purchase agreement, or "Kaufvertrag," involves several steps and specific requirements.

The Kaufvertrag is a bilateral contract, meaning it requires signatures from both the buyer and the seller. Either party can be composed of multiple individuals.

For instance, a couple might buy a property together, or siblings might sell a family-owned property. In cases where there are multiple buyers or sellers, all parties must sign the agreement.

Both parties need to provide certain documents and information for the signing process:

- Proof of ownership, such as a recent extract from the land registry, and personal identification.

- Personal identification and, often, proof of financing or bank statements to confirm the ability to pay the purchase price.

Here are the steps for signing:

Traditionally, both parties need to be physically present at the notarization appointment.

However, if physical presence is not possible, a party may grant power of attorney to someone (like a lawyer) to sign on their behalf.

Remote signing options might be available, but they are not common and depend on specific circumstances and the notary's discretion.

There is no fixed legal deadline for signing a Kaufvertrag. The timeline is typically determined by the agreement between the buyer and the seller.

However, once an offer is accepted, the process usually moves forward relatively quickly to ensure the terms remain relevant and applicable.

Once signed and notarized, the contract remains valid indefinitely, until all its terms are fulfilled. For example, once the payment is made and ownership is transferred, the contract is considered fulfilled.

After signing, the notary registers a priority notice of conveyance (Auflassungsvormerkung) in the land registry. This step secures the buyer's rights and prevents any further transactions on the property that could affect the buyer’s ownership claim.

Amending the contract after it has been signed and notarized is complex. It typically requires agreement from both parties and an additional notarization process.

The entire process, from signing to completing all necessary paperwork and approvals, can vary.

Generally, it might take a few weeks to a few months, depending on the complexity of the transaction, the efficiency of the local land registry office, and the speed at which the payment is processed.

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How is the payment handled when signing a property purchase contract in Germany?

In Germany, understanding the financial aspects of a property purchase agreement is crucial.

Here's a breakdown of what you need to know.

Unlike in some countries, in Germany, you don't typically pay a down payment or deposit at the time of signing the sales agreement. The primary financial commitment at this stage is the notary fees and any legal fees if you have hired an attorney.

For a property purchase in Germany, buyers usually finance a significant portion of the property price via a mortgage.

The typical down payment ranges from 20% to 30% of the property's purchase price, but this can vary depending on your financial situation and the lender's requirements.

Apart from the notary fees, there are additional upfront costs you should be aware of. These include a property transfer tax (Grunderwerbsteuer), which ranges from 3.5% to 6.5% of the purchase price, depending on the federal state.

There may also be real estate agent fees, which can be up to 7.14% of the purchase price, including VAT, and are usually shared between buyer and seller.

Typically, the payment isn’t made directly to the seller but is handled through a notary's escrow account. This ensures that the funds are securely held until all legal requirements are met, and the property is officially transferred to your name.

The due date for payment is generally specified in the purchase agreement. It is usually set for after the contract is signed and notarized, and after certain conditions, like the entry of a priority notice of conveyance in the land registry, are met.

As mentioned earlier, you’ll need to pay a property transfer tax. Additionally, if you sell the property within ten years of purchasing it, any profit made may be subject to capital gains tax.

However, there are no tax implications for the buyer beyond the property transfer tax and potential future capital gains tax.

The down payment is typically a matter between you and your mortgage lender rather than the seller. It's more about what the bank requires as security for the loan rather than a negotiable part of the purchase agreement with the seller.

Since a traditional down payment at the time of the contract signing isn’t customary in Germany, the question of refundability doesn't usually apply.

However, if any payment has been made and the sale falls through due to a contingency in the contract, the terms of the contract would dictate any refund.

The down payment generally needs to come from your own funds. Mortgage lenders in Germany usually require proof that you have this amount available, as it demonstrates financial stability and commitment to the property.

Attorneys and real estate agents don’t typically handle the payment process directly. Their role is more about ensuring the transaction complies with legal standards and advising you through the process. The financial transactions are usually managed by the notary.

You should request a receipt or confirmation of payment for any funds you transfer, including the down payment or the purchase price. This documentation is essential for your financial records and any future legal needs.

What are the potentials risks and pitfalls?

You might be interested in reading our article about the common risks and pitfalls surrounding a property transaction in Germany.

In Germany, the property purchase agreement, or Kaufvertrag, is a binding legal document with specific implications for both the buyer and the seller.

Understanding the potential risks and pitfalls is crucial for a smooth transaction.

Once the Kaufvertrag is signed and notarized, withdrawing from it is not straightforward. There is no statutory cooling-off period in German real estate transactions, unlike in some consumer contracts.

Therefore, once you have signed a notarized contract, you are generally bound to it.

Withdrawal or termination of the agreement typically requires a valid legal reason. For instance, if one party grossly misrepresented the property or if a contract clause allows termination under certain conditions, such as a buyer not securing financing.

If a buyer is unable to secure financing and the contract includes a financing contingency clause, they may be able to withdraw from the agreement. Without such a clause, failing to secure financing could lead to legal and financial consequences for the buyer.

If either party fails to fulfill their obligations outlined in the contract, the other party may seek legal remedies. For example, if a seller refuses to transfer ownership, the buyer can sue for fulfillment or compensation. The specific penalties depend on the contract terms and the nature of the breach.

Penalties for breaching the contract can be severe. The party in breach may be liable for damages or specific performance (i.e., being legally compelled to complete the transaction).

Any money already exchanged, such as payments made to a notary’s escrow account, would be subject to the terms of the contract and the outcome of any legal dispute.

Real estate transactions in Germany are more formal and regulated compared to some other countries. For example, the requirement for notarization and the absence of a cooling-off period make backing out of a contract more challenging in Germany.

In countries like the United States, there are often more clearly defined contingencies in the contract and typically a period during which the buyer can withdraw without penalty.

The most significant risks involve not understanding the contract terms, failing to secure financing, or discovering property defects. It's vital to have a thorough inspection and to understand all contractual terms, especially regarding your obligations and rights.

Disputes are usually resolved through negotiation, mediation, or, as a last resort, litigation. In some cases, an agreement might be amended to resolve a dispute, but this requires the consent of both parties and additional notarization.

If defects are discovered after signing, the course of action depends on the contract terms and the nature of the defects. German law provides some protection to buyers in cases of undisclosed or latent defects, but it's essential to address potential issues proactively before signing.

Disputes are relatively rare, mainly due to the thoroughness of the notarization process and legal framework governing property transactions.

However, when they occur, they often relate to financing issues, misunderstandings about the property condition, or breaches of contract terms.

This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.