The difference in working with real estate agents: professional brokerage

A property is a long-term investment. So it’s all the more important that buyers feel well advised. Rather than buying directly from a developer, therefore, some prospective owners prefer to work with a professional real estate agent who can take them through the entire selling process, from choosing the property to completing the purchase agreement.

Iris Rodriguez 4. November 2021 · Updated: 16. November 2021 · Reading Time: 8 minutes

The German word ‘Makler’ (broker) can be traced back to the 15th century. At that time, the word was probably borrowed from the Dutch verb ‘maken’ (to make); after all, if there’s one thing a broker knows, it’s how to make deals [1]. What everyone ultimately agrees on, however, is that a real estate agent is defined by their role as a professional intermediary who paves the way for the contracting parties.

What does a real estate agent do?

According to Section 652 of the German Civil Code, a agent is initially defined in very general terms as the person who brokers the completion of a contract or establishes the opportunity to complete a contract [2]. These two areas of responsibility result in two very different business models, which are used in a range of industries, from insurance to real estate.

While a so-called closing broker brings the contracting parties together personally and accompanies the negotiations regarding the terms of the contract, an opportunity broker only mediates between one party – the buyer or the seller – and a potential partner. In this case, however, both establishing contact and any subsequent negotiations are the responsibility of the contracting parties themselves.

In real estate, both closing and opportunity brokers can specialise in certain properties or in certain types of contracts. Therefore, in addition to residential real estate agents and land agents who deal with sales, there are also estate agents who focus on arranging tenancies.

Real estate agents must prove their expertise and their credibility
To complete brokerage projects in Germany, a real estate agent must prove both their expertise and their credibility

What distinguishes a reputable real estate agent?

Anyone who wants to work as a real estate agent in Germany needs the same trading licence as a property developer: the trading licence according to Section 34c of the Trade Regulation Act [3]. To obtain one, the real estate agent must prove a) their expertise in the real estate business and b) their credibility as an intermediary in contractual matters. Beyond that, however, neither training nor higher education are required to become a real estate agent – it is not a legally protected job title.

While established brokerage firms are, to a certain extent, liable for the proficiency of their employees through their reputation, it can sometimes prove difficult for potential clients to check the qualifications of self-employed brokers. Therefore, in addition to an up-to-date portfolio and completed brokerage projects, membership of a renowned industry association such as the Immobilienverband Deutschland (German Real Estate Association) , alongside successful completion of relevant further training through chambers of industry and commerce, can serve as references to help guide clients.

Extensive knowledge of the market through decades of experience
Extensive knowledge of the market acquired through decades of experience: RALF SCHMITZ “Eisenzahn1” in Berlin-Mitte
RALF SCHMITZ provides excellent service even after the selling process
Highest quality of service even after the selling process itself: Urban luxury at “LINIE72” in Berlin-Mitte

Who hires an estate agent – and who covers the costs?

For their services as contract brokers, real estate agents charge a brokerage fee. This is a commission calculated as a percentage of the value of the property brokered [4]. However, the actual amount of this fee can vary greatly: depending on the location and the property, the usual real estate agent’s commission is between three and ten percent of the sale value – plus VAT.

Who pays this commission depends largely on who hired the broker. On the one hand, the full costs can be covered by the contracting party who hired the broker; on the other, the fee can also be split between both parties. The portion of the fee covered by the seller is usually referred to as the customer’s brokerage. Its counterpart is the buyer’s brokerage – the share covered by the buyer, which can of course also be negotiated.

While the buyer’s brokerage must be included in the broker’s offer and clearly marked as such, the customer’s brokerage is not usually divulged to the buyer. Until December 2020, the customer’s brokerage was not relevant to the buyer’s brokerage; in the meantime, however, the legal basis has changed to such an extent that it is highly advantageous for the buyer to also know how much is being paid in customer’s brokerage.

Experienced developers may exhibit exclusive portfolios
As an experienced developer, RALF SCHMITZ exhibits an exclusive portfolio: Cover of “Exceptional Homes”, published in 2018

The new right to equal distribution of broker’s commission

Although real estate agents were previously free to decide how the brokerage fee was spilt between the contracting parties, since 23 December 2020 the new law on dividing brokerage costs when brokering sales contracts for apartments and single-family houses stipulates that buyers must cover a maximum of fifty percent of the fee, regardless of which party hired the agent [5].

“Until now, it was completely irrelevant for buyers to know whether the broker also received a commission from the seller and, if so, how much. This made it very attractive for brokers to pass on the lion’s share of the fee to the buyers in order to secure long-term collaborations with promising project developers by offering low brokerage fees for the sellers,” explains Maciej Auda. He works for RALF SCHMITZ as Head of Acquisition and Sales in Berlin and Hamburg and is very familiar with the legal framework surrounding real estate sales in Germany.

Auda sees the amended law as a big step forward for buyer protection: “If there’s even the slightest doubt about the fairness of the split, the buyer now has the right to first see the seller’s settled invoice before paying their own share of the brokerage fee. This prevents any unpleasant surprises and greatly helps to strengthen the foundation of trust in the real estate business.”

All talk is pointless without trust.

Franz Kafka

Buying from an estate agent or a property developer – comparing the benefits and services

The broker’s aim is to bring buyers and sellers together. As well as a good sense of customer needs, this mainly requires a sound knowledge of the market and a diversified real estate portfolio. Although over time most estate agents engage in a number of more or less permanent collaborations with property developers, housing associations and other project developers, they rarely represent a single seller exclusively; after all, the versatility of their portfolio is what makes them interesting to the widest possible range of buyers.

However, due to the real estate agent’s ‘middle-man’ position, a long-term relationship between the contracting parties is rarely established. As soon as the agent has received their commission, their connection with the client is usually terminated, also bringing contact between buyer and seller, which was established exclusively through the agent, to an abrupt end.

Therefore, if a buyer discovers any potential construction defects after the keys have been handed over, it can prove difficult to contact the seller who is liable for them – especially if the agent is already involved in a new project and has little time to follow up on completed negotiations.

In comparison, experienced property developers usually offer their clients a somewhat less extensive portfolio, but provide consistently fine quality and, above all, a service that extends far beyond the initiation of the contract.

“I sold the first residential units for RALF SCHMITZ about thirteen years ago,” recalls Maciej Auda. The legally prescribed warranty period of five years has long since passed for most of the sales he has handled since then. However, contact with his customers remains as lively as ever. “Even today, if they have a question or need a quick hand, they simply pick up the phone and give us a call,” he says. “This quality of service, which extends to our after-sales management, is just one of the reasons why we never claim to move thousands of properties every year. RALF SCHMITZ is synonymous with high-quality real estate and maximum convenience – for us, this means providing reliable support and contact for owners, even after purchase. And that simply works best with a smaller, more refined portfolio of luxury properties.”

In addition, buyers who purchase their property from a property developer do not have to worry about possible discrepancies between buyer’s and customer’s brokerage: “Property developers are generally not entitled to charge commission. For us, this is one of the most important reasons why RALF SCHMITZ will occasionally work with real estate agents; however, for the majority of our properties, we handle the entire sales process through our own employees,” explains Dr Axel Martin Schmitz, Managing Partner at RALF SCHMITZ.

“On the one hand, this allows us to get to know our customers personally and offer them a bespoke service; on the other, transparency is an ideal that has always been firmly rooted in our how we present ourselves: our customers know that they are in safe hands with us; from project development to handing over the keys, and for many years afterwards.”

Iris Rodriguez

The work of the journalist, publisher and copywriter Iris Rodriguez focuses on location branding, real estate and future topics related to sustainable development. She designs and writes (for) magazines and corporate publishing products (print and digital).

References

  1. Kluge, Friedrich: 'Makler' (real estate agent). In: 'Etymologisches Wörterbuch der deutschen Sprache' (Etymological Dictionary of the German Language). Edited by Elmar Seebold. 25th revised and expanded edition. Berlin/Boston 2011, p. 595.
  2. Cf. Civil Code Section 652 Accrual of fee claim. A complete and up-to-date version of the Trade Regulation Act can be found at Gesetze im Internet, an official website of the Federal Ministry of Justice and Consumer Protection.
  3. The legal basis for this is the Trade Regulation Act Section 34c Real Estate Agent, Loan Broker, Property Developer, Building Supervisor, Residential Property Manager, Delegated Legislation. A complete and up-to-date version of the legal text can also be found, among others, at Gesetze im Internet.
  4. Cf. for example, the entries for 'Maklerprovision' (broker's commission) and 'Maklercourtage' (brokerage fee) in the historical-linguistic 'DWDS – Digitales Wörterbuch der deutschen Sprache' (Digital Dictionary of the German Language) project curated by the Berlin-Brandenburg Academy of Sciences and Humanities.
  5. The exact wording of the amendment to the law on dividing brokerage costs when brokering sales contracts for apartments and single-family houses, published on 23 June 2020 in the Federal Law Gazette, Volume 2020, Part I No. 28, is available for download free of charge, among others, from the Bundesanzeiger Verlag.