Have you inherited a house and are considering selling it to the local council? This step can be a secure and fast alternative to the open market, but it also presents unique challenges. We show you how to accurately assess the opportunities and risks.
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The topic briefly and concisely
A sale to the municipality is only possible if there is demonstrable public interest, as defined in the Building Code (BauGB).
The municipality may exercise a right of pre-emption and enter into an existing purchase agreement within two to three months.
The purchase price is based on the official market value and is usually not freely negotiable, which provides security but can limit the proceeds.
An inherited house often presents heirs with a complex decision: Use it yourself, rent it out, or sell it? A frequently overlooked but potentially attractive fourth option is to sell it to your own city or municipality. But when is this even possible, and is it financially worthwhile? This guide sheds light on the legal framework according to the Building Code (BauGB), the exact process, and the critical factors in pricing. Learn how to make an informed decision on whether selling to the public sector is the right strategy for your situation and how to navigate the process to your advantage.
The municipality as a buyer: Check requirements
Selling an inherited house to the local authority is not an everyday real estate deal. Unlike private buyers, the public body acts not for speculative reasons but for the common good. A purchase by the municipality is therefore only considered if there is a public interest, which is usually anchored in the Building Code (BauGB). For example, the municipality may need land for new roads, public parks, or social housing. If your property is located in an officially designated redevelopment area or an urban development zone, the likelihood of municipal interest in purchasing it increases by over 50%. Therefore, before taking any action, an initial review of the local development plans is essential. A data-based analysis, what to consider with an inherited property, forms the basis for this. Knowledge of these specific conditions is the first step to realistically assessing the feasibility of such a sale.
Understanding the Municipality's Right of First Refusal under the German Building Code (BauGB)
The most important instrument of the municipality is the statutory right of pre-emption, regulated in paragraphs 24 to 28 of the Building Code (BauGB). This right allows the municipality to step into an already concluded purchase contract between you and a third party. The municipality acquires the property under exactly the same conditions that you negotiated with the original buyer. The notary is legally obliged to present every property purchase contract to the responsible municipality. The municipality then has a deadline of two months, or even three months in some federal states, to decide whether to exercise its right of pre-emption. If the municipality waives this right, it issues a so-called negative certificate, which is essential for the transfer of ownership in the land register. However, there are clear exceptions where the pre-emption right does not apply:
The sale is to spouses or direct line relatives (children, grandchildren).
The property is sold to religious institutions for pastoral purposes.
The sale serves national defense purposes.
It is a sale of rights under the Condominium Act.
Knowledge of these regulations is crucial to avoid delays and to set the right course for the sale, especially with regard to the applicable speculation period. The right of pre-emption is therefore a decisive factor that can influence the entire sales process.
Navigating the sales process with the public sector
The process of selling to a local authority differs in at least three significant ways from a private sale. It is more formal, transparent, and often less negotiable. If you proactively approach the local authority, the process is usually clearly structured. A detailed checklist for property sales helps to keep track. The process can be divided into five core phases:
Initial contact and needs assessment: You approach the relevant department of the local authority, usually the property or planning department. They will assess whether there is any public need for your property.
Submission of documents: The local authority requests all relevant documents. These include a current land register extract, the energy certificate, building plans, and a site plan.
Valuation by the local authority: The council usually commissions the independent valuation committee to determine the market value. This value forms the basis for the purchase offer.
Offer and resolution: Based on the assessment, the local authority presents you with a purchase offer. This offer is usually non-negotiable and often needs to be approved in a council or city council meeting.
Notarisation: If you agree to the offer, the traditional notary appointment follows to notarise the purchase contract. The payment of the purchase price is made after an entry of a priority notice, which can take four to six weeks.
This structured process may offer little room for flexibility, but it provides a high degree of security for the road ahead.
Determine the selling price objectively: Market value instead of the highest bid
One of the biggest differences from the free market lies in price determination. While in a private sale you can potentially achieve a price above market value through negotiation skills or bidding procedures, this is almost impossible when selling to the public sector. The municipality is obliged to be economical and therefore usually pays a maximum of the officially determined market value. This value, also known as market value, is determined through standardized methods such as the comparative value method. The sales prices of up to 100 similar properties in the area are used as a reference. The determined market value is the binding upper limit for the municipality's offer. This means for you: You achieve a fair, market-based price, but probably not the absolute maximum. However, an advantage is the transparency and objectivity in how you determine the final price. If the municipality exercises its right of pre-emption, it can even reduce a speculatively inflated purchase price from a contract with a third party to the market value. Therefore, a precise knowledge of the market value is your most important decision-making basis.
Weighing up pros and cons: Security versus maximum yield
The decision to sell an inherited house to the local council should be based on a careful consideration of the specific advantages and disadvantages. These differ significantly from those of a private sale. A clear understanding of the potential proceeds, that is what remains after the sale, is central. Here are the main points compared:
Advantages of selling to the local council:
Maximum transaction security: The financial solvency of a local authority is 100% guaranteed. The risk of a broken loan does not exist.
No broker fees: As you negotiate directly, you save the broker commission, which can be up to 3.57% of the purchase price depending on the federal state.
Clear, transparent process: The process is regulated by administrative acts and offers little room for unpleasant surprises.
Time saving: The often months-long search for a suitable and solvent buyer is eliminated.
Disadvantages of selling to the local council:
No price bargaining: The sale price is tied to the market value. In a heated market, you may miss out on 10-15% of potential proceeds.
Bureaucratic effort: The process can be prolonged over several months due to internal approvals and committee resolutions.
No guarantee of purchase: If there is no public interest, the council will reject your purchase offer.
Limited negotiation room: Contract clauses are usually standardised and barely adaptable.
This comparison shows that selling to the local council is a strategic decision between financial optimisation and process security.
Tax aspects when selling to the public sector
The usual tax regulations also apply when selling to a municipality. The tax authorities make no distinction here between a public and a private buyer. Two types of taxes are relevant for you as an heir. First, there is the inheritance tax, which depends on your degree of kinship and the associated allowances. The basis of assessment is the market value of the property, which is determined by the tax office. Additionally, capital gains tax may apply. This is due if less than ten years have passed between the original purchase by the testator and your sale. The ten-year period of the testator is fully credited to you. If you have inherited the house and the testator already owned it for 15 years, the sale is tax-free for you. An important exception to the capital gains tax applies if either the testator or you yourself lived in the property continuously in the year of sale and the two preceding years. A careful examination of these periods can save you several thousand euros in taxes.
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Selling an inherited house to the local council is a niche strategy that doesn't suit every heir. It offers a high level of security with guaranteed payment capability and a clear process, which is not always available on the open market. However, this advantage comes at the cost of potentially lower sale proceeds, as the price is strictly tied to the objective market value, prohibiting speculative gains. Ultimately, the decision depends on your personal goals: do you want to maximise your returns or ensure security? A precise, AI-powered property valuation, as offered by Auctoa, provides you with the necessary data foundation to answer this question comprehensively. Use our ImmoGPT chat to get an initial assessment and plan your strategy. A well-founded valuation is the first and most crucial step for a successful sale – whether to private buyers or public authorities.
Additional useful links
The Bundestag documents a hearing by the Construction Committee.
The platform Gesetze im Internet provides the legal text of Section 24 of the Building Code (BauGB), which regulates the municipality's right of first refusal.
The Federal Statistical Office (Destatis) offers official tables and data on house and land prices.
On Gesetze im Internet, you can find the complete Property Valuation Ordinance (ImmoWertV) from 2022.
FAQ
What happens if I decline the community's offer?
If you have proactively approached the municipality and declined their offer, nothing happens. You can continue to offer the property on the open market. However, if the municipality has exercised its right of first refusal on an existing contract, it takes the purchaser's place under the agreed terms.
How does the municipality determine the value of my inherited house?
The municipality usually commissions the independent valuation committee. This committee determines the market value in accordance with the methods specified in the real estate valuation regulation (ImmoWertV), typically using the comparison method.
Can I sell only part of my property to the municipality?
Yes, this is generally possible if the municipality is only interested in a part of the property (e.g., for a road extension). This requires a subdivision of the property, which must be notarised and registered in the land register.
Are brokerage fees incurred if the municipality exercises its right of first refusal?
That depends on your broker agreement. Often, the commission is due even if the sale occurs through the exercise of a pre-emption right. Carefully check your contract for any relevant clauses.
What is a certificate of non-impediment?
This is an official certification from the municipality that it waives its legal pre-emption rights. This document is mandatory for the notary to record the new owner in the land register.
What documents do I need for selling to the municipality?
You generally need a current land register extract, a site plan, an energy performance certificate, floor plans and building plans, a calculation of the living area as well as proof of completed modernisations.
