Depreciation due to maintenance backlog: How to calculate the deduction for an inherited house
Have you inherited a house, but its condition is far from perfect? A significant backlog of renovations can reduce the value by up to 30%. Understand how to accurately calculate this depreciation and avoid costly mistakes.
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The topic briefly and concisely
The depreciation is primarily determined by deducting the estimated repair costs from the hypothetical, defect-free value of the property.
The Building Energy Act (GEG) requires new owners to carry out energy renovations, such as replacing heating systems or installing insulation, often within two years.
For a complete renovation of an old building, expect costs between 600 and 1,500 euros per square meter, and for purely energy-related measures, even up to 1,600 euros.
Inheriting a property often comes with unexpected challenges. One of the biggest is the accumulated need for renovations over the years, which significantly reduces the property's value. Many heirs wonder: How can this depreciation be quantified accurately? Calculating the depreciation due to delayed renovations is crucial for setting a fair sale price or making an informed decision about the property's future. This article guides you through the recognised methods, highlights the legal pitfalls of the Building Energy Act (GEG), and provides a data-based guide to determine the true value of your property.
The Most Important Points
Calculating Depreciation: Depreciation is primarily determined by deducting the estimated renovation costs from the property's hypothetical, defect-free value.
Legal Obligations: The Building Energy Act (GEG) often requires new owners to carry out energy renovations such as heating replacements or insulation within two years.
Cost per Square Metre: For a full renovation of an old building, plan for costs between 600 and 1,500 euros per square metre, with purely energy-related measures costing up to 1,600 euros.
Cost Approach: In the official valuation process, renovation costs are deducted as "special property-specific characteristics" from the provisional intrinsic value.
Essentials: What a Renovation Backlog Means for Property Value
Have you ever wondered why two seemingly similar houses can differ in price by €50,000 or more? Often the reason is an invisible backlog of renovations. This term describes deferred maintenance and modernization measures that exceed normal age-related wear and tear. While linear age depreciation assumes a value loss of about 1.25% per year, a backlog of renovations significantly accelerates this process. A 30-year-old, outdated boiler is not only old but a significant cost factor. The Immobilienwertermittlungsverordnung (ImmoWertV) defines such deficits as "special property-specific land features" that reduce value. A professional condition assessment is therefore the first step to understanding the full extent. The precise analysis of these deficiencies is the basis for any realistic value calculation.
Legal Obligations: These Renovation Duties You Inherit
Since the amendment of the Building Energy Act (GEG) in 2024, heirs are not only owners but also obligated to renovate. In the event of a change of ownership, including inheritance, certain energy measures must be implemented within two years. Failure to comply with this obligation risks fines of up to €50,000. These legal requirements turn maintenance backlogs into an immediate financial burden. The costs for insulating the top floor ceiling alone can reach €25,000. The most common obligations include:
Replacement of boilers older than 30 years.
Insulation of the top floor ceiling or the roof (U-value ≤ 0.24 W/m²K).
Insulation of hot water pipes in unheated basements.
Compliance with specific requirements when renewing more than 10% of a building part, such as the façade.
A renovation requirement check helps you to identify these cost factors early on. These obligations are not negotiable and must be taken into account for depreciation.
Two methods for calculating depreciation
Two methods have become established in practice to quantify the depreciation due to a backlog of refurbishment. The most common method is the direct deduction of the repair cost. This involves deducting the costs for all necessary repairs and modernisations from the notional value of the property in its refurbished state. A complete refurbishment can quickly cost 500 to 600 euros per square metre. For a 150-square-metre house, this corresponds to a reduction of 75,000 to 90,000 euros. The second method is more complex and adjusts the remaining useful life (RUL) of the property. According to ImmoWertV, single-family houses have a total useful life (TUL) of around 80 years. A significant refurbishment backlog can shorten the RUL by 10 to 20 years, which significantly increases the depreciation due to age. For example, if the RUL has been reduced from 50 to 40 years, the depreciation due to age increases from 37.5% to 50%. An accurate calculation of refurbishment costs is essential for both approaches.
Practice Check: How the Renovation Backlog is Considered in the Real Asset Method
The asset valuation method, one of the three standardised valuation methods according to ImmoWertV, provides a clear framework for considering building defects. The expert first determines the property's asset value as if it were flawless. From this preliminary value, the costs for eliminating backlog maintenance are deducted as "special property-specific characteristics." These can include:
Repairable defects: Here, repair costs are considered, for example, 25,000 euros for a new roof.
Economic depreciation: Even after a repair, a flaw may remain (e.g., previous issues with dry rot), which justifies an additional deduction of 5-10%.
Technical depreciation: If a defect cannot be fully rectified (e.g., an unfavourable layout), the value is permanently reduced.
It is important that the costs are estimated plausibly and according to market conditions. A certified appraisal is the safest basis for this. Unsure about the level of renovation needed for your property? Auctoa’s ImmoGPT-Chat provides you with an initial, data-driven assessment in just 2 minutes.
Strategic Decision: Renovate before selling or offer as a 'doer-upper'?
Once the value reduction is determined, heirs face the crucial question: invest or sell directly? Renovation can potentially increase the selling price but carries risks. Not all measures are equally profitable; a new heating system has a greater impact on value than new wallpaper. An energy-efficient renovation can increase the value by 15-25%, but it quickly costs over 100,000 euros. Selling in its current condition is quicker and saves you the stress of renovation. However, you must accept a higher price reduction, which often exceeds pure renovation costs, as buyers factor in a risk premium of 10-15%. Consider your financial situation, time, and willingness to take risks. A renovation potential report can provide data-driven insights into which renovations are truly worthwhile and offer the maximum leverage for your sale proceeds. This way, you make an informed rather than an emotional decision.
Conclusion: Precise calculation as the key to fair value
The calculation of the depreciation of an inherited house due to a backlog of renovations is not an estimate, but a well-founded analysis based on costs, laws, and market data. A discount of 20% or more is not uncommon for older, unsanctioned properties. By realistically estimating the renovation costs and pricing in the legal obligations under the GEG, you protect yourself from unrealistic expectations and costly renegotiations. The true value of an inherited property lies not in its condition, but in the potential you recognise and realise through data support. An objective, AI-supported valuation from Auctoa gives you the necessary confidence for your decision. Make the right choice for your inheritance.
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Additional useful links
The Statistische Bundesamt provides comprehensive information on construction prices and real estate price indices in Germany.
The Statistische Bundesamt publishes press releases on current developments in construction prices.
The KfW informs about funding programmes for energy-efficient renovations of existing properties for individuals.
The KfW offers an overview of their funding products for energy-efficient renovations of existing homes.
The consumer advice centre explains the contents and effects of the Buildings Energy Act (GEG).
Energiewechsel provides information on the tax incentives for energy-related building renovations.
FAQ
How do I determine the exact renovation costs?
For an accurate assessment, you should obtain quotes from several tradespeople. Alternatively, a building surveyor or energy consultant can prepare a detailed report outlining all necessary measures and their estimated costs.
Can I deduct the renovation costs for tax purposes?
Tradesman services for renovation, maintenance, and modernization measures can be claimed for tax purposes. You can deduct 20% of the labor costs, up to a maximum of 1,200 euros per year, from your tax debt. Energy-efficient refurbishment measures are often subsidized by government grants (KfW, BAFA).
What is the difference between deferred maintenance and normal depreciation?
The depreciation with age refers to the linear, normal loss of value due to wear and tear over time. A maintenance backlog describes postponed maintenance measures that result in an above-average loss of value and often lead to acute defects.
Is it worth renovating before selling?
It depends on the individual case. Energy-efficient renovations or the modernisation of bathrooms and heating systems can be worthwhile. Purely cosmetic renovations often do not pay off. A cost-benefit analysis, as provided by the Auctoa Renovation Potential Report, is recommended here.
How does a backlog of renovations affect financing by a bank?
Banks evaluate properties with significant renovation backlogs very critically. The determined value (lending value) is considerably lower, and the bank may impose higher equity requirements or add a risk premium to the interest rate. Often, the granting of a loan is conditional on the renovation measures being carried out.
What happens if I ignore the renovation obligation under the GEG?
If you do not comply with the legal rehabilitation obligations within the two-year period, the competent building authority may impose a fine of up to 50,000 euros. Additionally, the authority can order the implementation of the measures.
