Does your balance sheet reflect the true value of your properties? An incorrect HGB market value determination can distort your equity by over 10% and lead to high tax burdens. This article shows you how to avoid pitfalls and assess values correctly.
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The topic briefly and concisely
The HGB valuation is based on the cost principle, with the value limited downwards by the lower of cost or market principle if there is a permanent impairment.
An unplanned write-down is mandatory in the event of a permanent loss of value; if the reason no longer applies, a write-up must be made up to the maximum carrying amount.
For heirs, a market value appraisal in accordance with ImmoWertV is crucial to correct a potentially excessive inheritance tax assessment by the tax office.
The valuation of real estate according to the German Commercial Code (HGB) is a critical yet often underestimated topic for owners, heirs, and companies. Unlike international standards (IFRS), the focus here is not on maximum market values but on the principle of commercial prudence. A correct HGB market value determination for real estate not only ensures compliance with legal obligations but also protects against excessive tax demands and erroneous business decisions. Whether it’s about inheritance tax, selling, or pure accounting – even small mistakes in the application of cost and lower-of-cost-or-market principles can result in financial consequences in the five-figure range. We guide you through the four central pillars of HGB valuation and show you how to accurately determine values.
Foundation of Evaluation: The acquisition cost principle according to § 255 HGB
The basis for any real estate valuation under German commercial law is the cost principle. According to Section 253 (1) of the German Commercial Code (HGB), assets may be accounted for at no more than their original acquisition or production costs in the balance sheet. This regulation serves to protect creditors and prevents unrealised gains, such as those due to mere market fluctuations, from being reported. The purchase price, which generally corresponds to the net amount from the purchase contract, is only one part of the total acquisition costs.
Acquisition costs include all expenses incurred to acquire the property and to bring it to an operational state. According to Section 255 HGB, in addition to the purchase price, they also include incidental expenses such as real estate transfer tax (depending on the federal state, 3.5% to 6.5%), notary fees (approx. 1.5%), and brokerage commissions. However, received reductions such as discounts or rebates must be deducted from the total costs. Correctly determining these costs is the first step towards solid accounting. An incorrect approach can distort the depreciation base by up to 10%. You can find more about this in our article on the acquisition cost model for real estate. This precise but conservative valuation method forms the upper limit of the value in your balance sheet.
Safety Net for the Balance Sheet: The Mitigated Lower of Cost or Market Principle
What happens if the market value of your property falls below the (already depreciated) acquisition costs? This is where the lower of cost or market principle, embedded in § 253 (3) HGB, comes into play. It ensures that assets are not overvalued and serves as an instrument of commercial prudence. For properties as part of fixed assets, a 'tempered' form of this principle applies. An extraordinary depreciation to a lower market value is only mandatory if the impairment is expected to be permanent.
A permanent impairment can be triggered by various factors. The most common reasons are:
Significant structural damage, for example, an undiscovered water damage that sustainably harms the building fabric.
Structural vacancy of over 20% in the area, which significantly limits the marketability in the long term.
Negative developments in the area, such as the closure of a major employer in the region.
Legal usage restrictions that occur after acquisition and reduce the value by more than 15%.
Short-term market fluctuations, as observed in the last 24 months, do not in themselves justify depreciation. The distinction between HGB and international standards is essential here, as our article on the difference between IFRS and HGB explains in detail. Thorough examination of permanent impairments is crucial to correctly adjust the book value.
Depicting depreciation: Scheduled and unscheduled write-offs
The value of a property decreases not only due to market influences, but also from normal wear and tear. Depreciation distributes the acquisition or production costs of a building over its expected useful life. A building with acquisition costs of €2,000,000 and a useful life of 50 years is depreciated annually by €40,000. The land value itself is not depreciated, as land does not undergo wear and tear.
In contrast, extraordinary depreciation is invoked in the case of an unexpected, permanent impairment, as described in the previous section. For example, if the market value of a property with a book value of €800,000 falls to €600,000 due to irreparable damage, an extraordinary depreciation of €200,000 is necessary. This measure under § 253 (3) HGB is not an option, but an obligation. It ensures that the balance sheet accurately reflects the true financial position. Proper handling of both types of depreciation is essential for the valuation of business properties.
Determining the market value: The procedures of the ImmoWertV as a benchmark
To apply the principle of lower of cost or market, you need a reliable market value (fair value) as a basis for comparison. This value is not arbitrarily estimated but determined according to the standardized procedures of the Immobilienwertermittlungsverordnung (ImmoWertV). Although the market value does not directly enter the HGB balance sheet (except in the case of a write-down), its correct determination is essential for the assessment. An incorrectly determined fair value can lead to omitted or excessive depreciations.
The ImmoWertV recognizes 3 main methods for value assessment:
Comparison method: Here, the value is derived from the sales prices of similar, recently sold properties in the neighbourhood. It is the preferred method for owner-occupied houses and apartments.
Income method: This method is crucial for rented properties. It calculates the value based on the expected future net rental income.
Cost method: When there is no comparable or income data, this method is used. It determines the costs for a hypothetical new construction and deducts the depreciation.
The choice of the correct method depends heavily on the type of property and the availability of data. While a traditional appraisal often takes 4 to 6 weeks, Auctoa's AI-supported approach provides a data-driven assessment within 48 hours. Contact us now without obligation to receive a quick and neutral evaluation. Knowing the exact market value is the key to correctly applying the HGB valuation methods.
Reversal of impairment losses according to § 253 paragraph 5 HGB: Utilise the revaluation requirement
An unscheduled write-down is not a permanent condition. If the reason for a previous devaluation ceases to exist, the value recovery requirement under § 253 Para. 5 HGB applies. Suppose a property was devalued by €100,000 due to severe noise pollution from a five-year large construction site. After the construction works are completed and the original quality of the location is restored, this value must be reinstated.
However, the reinstatement is strictly limited: The new book value must not exceed the continued acquisition costs. This means the value is raised only up to the amount the property would have today without the unscheduled depreciation — that is, the original acquisition cost minus regular scheduled depreciations. This requirement ensures that hidden reserves, which arose from the temporary devaluation, are released once the justification for them ceases to exist. Compliance with disclosure obligations in property valuations is of great importance here.
Special case for heirs and owners: Market value determines tax liability
Especially for heirs and private property owners, the HGB market value determination for real estate is of high practical relevance. In the event of inheritance, the tax office sets the value of the property for the calculation of inheritance tax. Often, flat-rate valuation methods are used that do not sufficiently take into account individual characteristics such as a backlog of repairs or legal restrictions. This can lead to a tax demand that is 15-25% too high.
You, as an heir, have the right to demonstrate a lower, actual market value through a qualified market value appraisal. Such an appraisal, carried out according to the procedures of the ImmoWertV, can significantly reduce your tax burden. An investment of €2,000 in an appraisal can result in a tax saving of over €20,000 in many cases. Whether you want to sell an inherited property, keep it, or pay off co-heirs, a neutral, data-driven valuation is the foundation for a fair and financially optimized decision. The ImmoGPT-Chat from Auctoa can provide you with an initial free assessment and show whether a detailed appraisal is worthwhile for you.
hgb-marktwertbestimmung-immobilien
The HGB market value assessment for real estate is far more than just an accounting obligation. It is an active tool for managing your assets and tax liabilities. Consistent application of the principles—from acquisition costs through the principle of lower of cost or market to the obligation to revalue—protects against unpleasant surprises and uncovers hidden reserves. A deviation from book value to the actual market value of 30% is not uncommon for older properties. Do not rely on outdated book values or general assumptions. Regular, professional evaluations provide you with the security needed for informed decisions. Your balance sheet should be a tool for the future, not a reflection of the past.
Additional useful links
Wikipedia provides a comprehensive overview of valuation, meaning the determination of the value of assets.
gesetze-im-internet.de offers the complete Commercial Code (HGB), which forms the legal basis for property valuation.
Bundesanzeiger is the official publication organ for company data and announcements, relevant for disclosure requirements.
Statistisches Bundesamt (Destatis) provides detailed information on construction prices and the property price index, important indicators for market value determination.
Deutsche Bundesbank presents its indicator system for the housing market, offering insights into market developments.
Bundesinstitut für Bau-, Stadt- und Raumforschung (BBSR) offers comprehensive information and research findings on housing and real estate topics.
Institut der Wirtschaftsprüfer (IDW) publishes statements such as IDW ERS IFA 3, which explain special aspects of asset valuation.
Bundesministerium der Finanzen provides information on the real estate transfer tax, a key component of the acquisition costs of property.
FAQ
How is the market value determined for the HGB valuation?
The market value (or fair value) is determined according to the procedures laid down in the German Property Valuation Ordinance (ImmoWertV): the comparative value method, the income value method, or the asset value method. This value serves as a reference for checking whether an impairment loss according to the principle of lower of cost or market is necessary.
What is included in the acquisition costs of a property according to the German Commercial Code (HGB)?
The acquisition costs according to § 255 HGB include the net purchase price, real estate transfer tax, notary and land registry fees, as well as any broker commissions. Reductions in purchase price, such as discounts or cash discounts, must be deducted.
What does 'expected permanent' impairment mean?
An impairment is considered permanent if the value of the property is not expected to reach the carrying amount of the acquisition cost for a substantial part of the remaining useful life. Temporary market fluctuations alone are generally not sufficient for this.
What is the reinstatement rule?
The write-up obligation (§ 253 (5) HGB) requires companies to reverse a previously made extraordinary depreciation (write-up) if the reasons for the write-down have ceased to exist. The upper limit of value is always the continued acquisition cost.
Do I also need to depreciate an undeveloped property?
No, land and soil are not subject to systematic depreciation because they do not wear out. However, an unscheduled depreciation is possible if the value of the land permanently decreases, for example, due to contamination or a negative change in the development plan.
How can Auctoa assist with the HGB valuation?
Auctoa provides an accurate, data-driven determination of market value within 48 hours using AI-supported analysis. This value is the necessary basis for the lower of cost or market test under HGB accounting, helping you to ensure a correct valuation quickly and cost-effectively.
