Are you selling your property below value? Valuation rules according to the German Commercial Code (HGB) can obscure the true market value of your property by thousands of euros. Discover how a valuation based on IFRS logic reveals the real value and strengthens your financial position.
Chat with ImmoGPT for free now.
With access to Google, BORIS, and Deep Research.
The topic briefly and concisely
The HGB protects creditors through the conservative valuation at acquisition cost, which leads to hidden reserves.
IFRS informs investors through fair value assessment, which reveals the true value of a property.
The choice of valuation approach directly affects equity, creditworthiness, and the achievable sale price by up to 30%.
The decision to sell real estate is often complex and fraught with uncertainties. A key factor that determines success is the correct valuation. But did you know there are fundamentally different approaches to it? Valuation according to HGB (German Commercial Code) and IFRS (International Financial Reporting Standards) can lead to markedly different results. While the HGB focuses on creditor protection and cautious valuations, IFRS aims for a realistic representation for investors. This article explains the crucial differences and shows you how, by understanding the valuation logic correctly, you can optimise your sale proceeds and minimise risks. We provide you with the data-driven facts you need for a well-informed decision.
Fundamental Differences: Creditor Protection versus Investor Information
Financial reporting under HGB and IFRS pursues two fundamentally different objectives. The German HGB is characterised by the principle of prudence and serves primarily to protect creditors. Assets, including real estate, may be recorded at no more than their original acquisition or production costs (§ 253 para. 1 HGB). This often leads to the creation of significant hidden reserves. On the other hand, IFRS aim to provide investors with the most realistic decision-making basis possible, the so-called 'True and Fair View'. Here, the focus is on the current market value, the Fair Value, which allows for revaluation beyond historical costs. These different philosophies have a direct impact on the reported value of your property and therefore on the potential sale price. An evaluation based on IFRS principles can reveal the true value of your property, as in the case of a Fair Value property valuation.
The HGB Principle of Acquisition Costs: Security with Hidden Reserves
Under the German Commercial Code (HGB), a property is capitalised at its acquisition cost and depreciated over its useful life on a scheduled basis. Any increase in value beyond this original amount may not be disclosed. A property purchased 20 years ago for €500,000 may be worth €1.5 million today but might only be reported at €300,000 in the balance sheet after depreciation. This difference of €1.2 million is a 'hidden reserve'. This method is advantageous for creditor protection as it tends to undervalue assets. However, when it comes to property sales and valuation according to HGB and IFRS, this approach can lead to misjudgments. It obscures the real value tied up in the property. The HGB valuation of land follows strict rules.
The valuation according to HGB has clear advantages and disadvantages:
Advantages: High objectivity due to historical costs, lower valuation effort, and protection against the disclosure of unrealised gains.
Disadvantages: Low relevance, hiding of appreciation potential, and a potentially too low equity ratio on the balance sheet.
Risk: An assessment based purely on HGB can weaken the negotiating position by up to 40% in the event of a sale.
Example: A company with high hidden reserves may receive worse credit terms because the collateral is undervalued.
This conservative view stands in stark contrast to market-oriented valuation according to international standards.
IFRS and Fair Value: Making the true market value visible
The IFRS, particularly IAS 40 for investment property, allow valuation at fair value. The fair value is the price that would be received in an ordinary transaction between market participants at the valuation date. Changes in value, both positive and negative, are directly recognised in the profit and loss statement. This provides a dynamic and up-to-date picture of the financial position. A property that increases in value by 10% in one year directly contributes this increase in value to the company's results. For a seller, this approach is invaluable, as it provides a realistic, data-driven basis for pricing. The valuation of investment properties follows this logic. The determination of fair value is clearly regulated in IFRS 13 and follows a three-level hierarchy to maximise objectivity.
The three levels of the fair value hierarchy are:
Level 1: Use of quoted prices in active markets for identical assets (e.g., stock exchange prices). This is rarely applicable to real estate.
Level 2: Use of observable market data for similar assets (e.g., comparison prices for similar properties in the same location).
Level 3: Use of unobservable inputs, such as valuation models like the discounted cash flow method (DCF).
This transparency is crucial for gaining the trust of investors and buyers.
Impairments and Depreciations: Different Approaches
Even regarding loss of value, the systems differ significantly. According to HGB, an extraordinary depreciation occurs only in the event of a presumably permanent impairment. The threshold for this is relatively high. IFRS, on the other hand, requires an annual impairment test (Impairment Test according to IAS 36) for certain assets like goodwill. For other assets, such as real estate, a test must be conducted as soon as there are indications of impairment. This “impairment-only approach” of IFRS ensures that assets are not overvalued and responds more quickly to market changes. If the reason for a previous depreciation ceases to exist, there is a requirement for a reversal of the impairment under both HGB and IFRS, although there are exceptions. The different approaches to valuation methods for real estate show how important a thorough analysis is.
Tax Pitfalls: The Impact of Deferred Taxes
The revaluation under IFRS results in a higher valuation in the financial statement prepared under commercial law than in the tax statement, which in Germany follows the HGB rules. This difference is temporary and will balance out upon the sale of the property. On this future taxable gain, the company must recognise a deferred tax liability. Example: An upward valuation of a property by €1 million results in the formation of a deferred tax liability of €300,000 with an assumed tax rate of 30%. This position reduces equity and must be considered in the company's valuation. The complexity of deferred taxes on real estate can quickly lead to miscalculations without expert advice. A precise analysis, as provided by Auctoa with ImmoGPT, helps you accurately assess these hidden liabilities.
Conclusion: The Right Evaluation as a Strategic Lever
The real estate sale valuation according to IFRS and HGB is not merely an academic exercise, but has significant financial consequences. While the HGB provides security through conservative values, the IFRS logic offers a realistic market view and reveals the full value potential of your property. For private owners and heirs, understanding the fair value method is crucial to achieve a market-oriented price and avoid negotiations based on outdated book values. Companies can enhance their creditworthiness and secure a stronger negotiating position in the M&A process with an IFRS-compliant valuation. A data-driven, neutral valuation is key to making informed decisions. Take advantage of an Auctoa valuation now to gain clarity on the true value of your property. A sound valuation is the first step to a successful sale.
immobilienverkauf-bewertung-nach-ifrs-und-hgb
Additional useful links
Wikipedia provides a comprehensive overview of the International Financial Reporting Standards (IFRS).
Wikipedia offers a detailed article about the German Commercial Code (HGB).
KPMG provides a brochure comparing real estate accounting under IFRS and HGB.
DRSC provides a feedback document for the evaluation of IFRS.
Haufe offers decision support on IFRS and HGB, including the differences and transition.
Statistisches Bundesamt (Destatis) provides information on construction prices and the property price index.
Deutsche Bundesbank presents its indicator system for the residential real estate market.
Bundesfinanzministerium offers the official depreciation tables (AfA).
Gesetze im Internet offers the full text of § 255 HGB for valuation.
FAQ
Which valuation method is relevant for me as a private property seller?
As a private seller, you do not prepare financial statements according to HGB or IFRS. However, the *mindset* is crucial: an assessment should be based on the IFRS logic of Fair Value to determine the true market value, rather than relying on outdated acquisition costs (HGB logic).
How does the valuation method affect financing?
A higher property valuation under IFRS leads to higher reported equity. This improves balance sheet ratios and can significantly increase a company’s creditworthiness with banks.
What does an 'impairment test' mean for a property?
An impairment test under IFRS checks if the recoverable amount of a property is below its carrying amount. If this is the case, an extraordinary depreciation must be made to avoid overvaluation.
Do I need to report under IFRS as a German company?
Publicly traded companies are required to prepare an IFRS consolidated financial statement. Non-publicly traded companies can choose to prepare financial statements according to IFRS voluntarily but must still prepare an HGB balance sheet for tax purposes (principle of importance).
How does Auctoa help me with the evaluation?
Auctoa provides an AI-driven, data-based property valuation based on the fair value principle. You will receive an objective and market-based value, free from the conservative constraints of the HGB perspective, allowing you to make informed sales decisions.
What are deferred taxes and why are they important?
Deferred taxes arise from the difference between commercial and tax accounting. A higher valuation according to IFRS creates a future tax liability that must be reported as a liability (deferred tax liability) in the balance sheet and influences the company's net worth.
