What are incidental purchase costs? We explain!

Incidental purchase costs are an initially inconspicuous item in real estate financing that are often given little or no attention - which is a big mistake. In Germany, these incidental costs account for a considerable share of the total costs.

Explanation of incidental purchase costs

The price of the actual property at which the seller wishes to sell is the purchase cost. The incidental purchase costs are the costs arising in parallel and which are related to the level of the purchase price. The more expensive your real estate is, the higher the incidental purchase costs will be. A further hurdle: they vary in each federal state.

Currently, the following incidental purchase costs arise during a property transaction.

  • Notary fees
  • Land register fees (transfer)
  • Estate agent commission
  • Land transfer tax

Frau mit Taschenrechner und Münzen

The current owner (i.e., the seller) of the property does not benefit from these incidental purchase costs. The brokerage commission finances the services/work of the estate agent who initiated the transaction and all that is part of them. Notary fees pay the notary public for all their work. The federal states (Länder) or the public sector, and thus the state, profit from the land transfer tax.

Note: The purchase price you see for an advertised property does not usually include any incidental purchase costs. It is clearly shown if any of them do not apply, for example if the property is marketed “free of commission”. In general, however, you should always assume that all the above incidental costs must be added to the advertised price.

Further costs associated with building

If you do not buy a property but build your own, you have to add further costs to your list. Builder's liability (about 0.1 % of the purchase price) and construction insurance (about 0.12 %) are just as much a part of this as approximately 0.5 % for building permit. Development costs are very individual and cannot be generalised.

An example of incidental purchase costs in Bavaria

As a federal state, the Free State of Bavaria creates incentives for buyers that are reflected in overall low incidental purchase costs, especially in a Germany-wide comparison. All percentage values quoted always refer to the agreed purchase price of the property.

The notary and land registry costs throughout Germany are 2%. The land transfer tax in Bavaria is very low and amounts to only 3.5% - for comparison: in North Rhine-Westphalia 6.5% are charged, in Berlin 6%. The usual brokerage commission is shared between both parties to the transaction, so up to 3.57% are paid by the buyer. This means that buying in the Free State of Bavaria will add incidental costs of 9.01% to your total.

You can easily see how this all amounts to a considerable sum of money. If you buy a property worth 500,000 euros, your additional costs will be around 45,000 euros. These are generally paid from equity.

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