Purchase costs in Germany: the money you need first.

What counts as incidental purchase costs

Incidental purchase costs are the costs triggered by the acquisition itself, regardless of what you intend to do with the property later. There are exactly four items. Three are fixed by law, one is a matter of negotiation.

The four items

• Land transfer tax. A state tax on the purchase price, assessed by the tax office after notarisation. The rate depends on the federal state in which the property is located, not on where you live. Tax base, exemptions and the Hessian Hessengeld grant are explained in the guide to the land transfer tax in Hesse.
• Notary fees. Notarisation of the purchase contract, execution and supervision, plus the notarisation of the land charge for the bank. The fees are set by the Court and Notary Costs Act (GNotKG) and are based on the purchase price or the nominal amount of the land charge. How the invoice comes about and when it falls due is covered in the guide to notary fees when buying a house.
• Land registry fees. Fees of the land registry for the priority notice, the transfer of ownership and the registration of the land charge. Also under the GNotKG, also not negotiable.
• Agent's commission. Only if an agent was involved. For flats and single-family houses, § 656c of the German Civil Code (BGB) requires buyer and seller to commit to the same amount if the agent claims commission from both. The buyer's share in the Rhine-Main region is usually 3.57 percent including VAT.

Moving, renovation, a fitted kitchen, surveys and the costs of the financing are not incidental purchase costs. They are real, but they follow different rules and the bank treats them differently. Anyone who throws everything into one pot loses track, in the meeting with the bank, of which items can be financed at all.

Calculating the purchase costs: the method in percent

The incidental purchase costs can be calculated with four percentages, all applied to the same purchase price and then added up. A calculator does nothing else. Anyone who knows the method can estimate any listing in a minute.

Three things shift the result. First, the tax base: the land transfer tax applies only to the land and the building, not to movable inventory sold with it such as a fitted kitchen or a sauna, provided it is listed separately and realistically in the contract. Second, the land charge: notary and land registry charge for it according to its nominal amount, which sits close to the purchase price in a tight financing and well below it with a lot of equity. Third, the agent: without one, the largest single item after the tax disappears.

To put the order of magnitude in context: on a purchase price in the mid six figures, roughly 11 percent is a mid five-figure sum. That is the amount that has to be in the account before the first loan instalment.

Hesse and Bavaria: two rates in one advisory region

The land transfer tax is the item that pulls the purchase costs apart between the federal states the most. The federal act names 3.5 percent as the base rate and lets each state set its own. Across Germany the range today runs from 3.5 to 6.5 percent.

For the Rhine-Main region that means: Frankfurt, Hanau, Offenbach, Rodgau and the Main-Kinzig district are in Hesse, where according to the Hessian administration portal a rate of 6 percent applies. Aschaffenburg and the Bavarian Lower Main are in Bavaria, where according to the Bavarian State Tax Office the federal base rate of 3.5 percent applies. What counts is the location of the property, not the buyer's residence and not the bank's registered office.

Two and a half percentage points sounds like little. Applied to the price of a property in the mid six figures it is a low five-figure sum, roughly what notary and land registry cost together. ME Finance advises at five locations on both sides of this border, and in practice the difference is a real criterion when searching along the Main: the same property at the same price needs noticeably more equity in Hanau than in Aschaffenburg.

Hesse cushions this for first-time buyers with the Hessengeld, a grant that recovers part of the tax paid, but only after the purchase and on application. For liquidity planning that changes nothing: the tax has to be paid in full first. Details and conditions are in the guide to the land transfer tax in Hesse.

The order in which the invoices arrive

The incidental purchase costs do not fall due at the end in one sum but one after the other, and almost all of them before the bank pays out. Because these items have no counterpart in the property, there is no collateral against which a bank would advance them. The order is laid down by law.

Seven steps from the notary to the land register

1. Notary appointment and notary's invoice. The notary's fee claim arises with the notarisation. The invoice arrives in the weeks after and is payable immediately, long before the purchase price.
2. Priority notice. The notary has your priority notice (Auflassungsvormerkung) entered in the land register, and the land registry issues its first fee. It secures your claim before you pay.
3. Land transfer tax assessment. The notary reports the purchase to the tax office, which assesses the tax. Under § 15 of the Land Transfer Tax Act it falls due one month after the assessment is issued.
4. Tax clearance certificate. Only once the tax is paid or secured does the tax office issue the Unbedenklichkeitsbescheinigung and send it to the notary. Under § 22 of the Land Transfer Tax Act the buyer may not be registered as owner without it. This is the point at which an unpaid tax stops the entire execution.
5. Agent's invoice. The commission claim arises with the valid purchase contract. Payment on transfer of the purchase price is customary; some agency agreements provide for it earlier. The contract wording decides.
6. Purchase price. As soon as the priority notice, the release of existing charges and any approvals are in place, the notary sends the due-date notice. Now the bank disburses the loan and your equity share of the price is transferred.
7. Transfer of ownership. After payment, certificate and registration of the land charge, ownership is transferred. The land registry issues the last fee.

From this sequence follows the rule ME Finance starts every financing with: equity is counted against the incidental costs first, and only the remainder against the purchase price. Anyone who does it the other way round plans with money that is still tied up in the financing at the moment the notary and the tax office demand it. The exact sequence at the notary, including who pays for deleting old land charges, is in the guide to notary fees when buying a house.

Why the bank does not lend against the purchase costs

Incidental purchase costs do not increase the value of the property. That is exactly why the bank normally does not finance them, and exactly the point most calculators and guides leave out. The logic is written into the regulation under which German banks value property.

Under § 3 of the Mortgage Lending Value Regulation the mortgage lending value is the value that can be expected to be achieved on a sale throughout the entire term of the loan, independent of temporary fluctuations and without speculative elements. It usually sits below the purchase price. Tax, notary, land registry and commission do not appear in this definition, because no later buyer will pay them back to you. They are money that is gone with the purchase.

The loan is measured against the mortgage lending value. The ratio of loan to lending value is the loan-to-value, and the higher it is, the more expensive the rate, because the bank carries more risk. As soon as the incidental costs are financed, the ratio rises above one hundred percent: the bank lends more than the collateral covers. How the value is set in detail is in the guide to the mortgage lending value.

The three-line calculation

In its advice ME Finance therefore calculates in three lines before rates are discussed. Line one: the incidental costs at the rates of the state in which the property is located. Line two: the available equity less those costs and less a reserve. Line three: the remainder against the purchase price, from which follow the loan requirement and the loan-to-value. Only once line three stands is it worth looking at terms, because the rate band follows the loan-to-value, not the lender.

If the equity covers only the incidental costs, the financing is a full financing of the purchase price. If it does not even cover those, the question becomes a 110 percent financing. Both are possible, both require very good creditworthiness, carry a rate premium and are decided by each lender under its own rules. What can lead to a refusal, and what makes sense afterwards, is covered in financing declined. How much equity makes sense overall is set out in the guide to equity.

Reducing the purchase costs: what works and what does not

Three of the four items are fixed by law, so the room for manoeuvre is smaller than many guides suggest. Honestly counted there are four levers, and none of them is a trick.

• Buy without an agent. Buying directly from the owner removes the largest single item after the tax. What does not work: shifting the commission one-sidedly onto the buyer. For flats and single-family houses § 656c BGB requires an equal split, and deviating agreements are void.
• List inventory separately. A fitted kitchen, a sauna or awnings are not land and do not trigger land transfer tax if they are listed separately in the contract at a realistic value. The tax office checks the amount, and the bank does not lend against this share.
• Do not register the land charge higher than needed. Notary and land registry charge for the land charge according to its nominal amount. Anyone who has it registered well above the loan pays fees without a counterpart. A reserve for later projects can make sense, but it should be a deliberate decision.
• Grants after the purchase. In Hesse the Hessengeld recovers part of the tax for first-time buyers. It does not lower the incidental costs, it partly refunds them. For the order of payments it has no effect.

For tax purposes: if you live in the property yourself, the incidental purchase costs are not deductible. If you let it, they count as acquisition costs under § 255 of the German Commercial Code (HGB) and take effect through depreciation of the building share, not immediately. The costs of the financing run separately as income-related expenses. The specific structuring is a matter for tax advice, not for the mortgage broker.

What buyers should take from this guide

• Incidental purchase costs are four items: land transfer tax, notary, land registry and, where applicable, the agent. Everything else is a different block.
• In Hesse they are roughly 7.5 to 8 percent without and roughly 11 to 12 percent with an agent. In Bavaria two and a half percentage points less, because the land transfer tax is 3.5 rather than 6.0 percent.
• The invoices arrive one after the other and almost all before the loan is disbursed. No tax paid, no clearance certificate; no certificate, no land registry entry.
• Incidental costs have no counterpart in the mortgage lending value. That is why they come from equity, and why ME Finance counts equity against the incidental costs first.
• They can honestly be reduced in only two places: the agent and the inventory. The rest is law.

ME Finance is not a bank and sells no product of its own. We run the three lines for your property, whichever side of the Main it is on, and tell you which financing the collateral actually supports. Describe your project through the non-binding enquiry.