Payment methods, buyer creditworthiness, and contract safeguards: How to complete your real estate sale securely
Are you about to sell your property and wondering how to make the process secure and efficient? Proper handling of payment terms, verification of buyer creditworthiness, and solid contract guarantees are crucial for your success. This article will show you what to pay attention to.
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The topic briefly and concisely
A thorough check of the buyer's creditworthiness and clear contractual arrangements regarding payment terms are essential to minimise risks such as payment defaults in property sales.
Notarial assistance is legally required in Germany and ensures the legal security of the entire sales process, from contract drafting to the transfer of ownership.
In addition to the purchase price, additional costs of 12-15% must be considered; cash payments of the purchase price have been prohibited since April 2023.
The sale of a property is often associated with significant sums and complex legal steps. Many owners, especially heirs, feel uncertain about how to avoid risks such as payment defaults or legal pitfalls. Careful planning and knowledge of the key aspects of payment modalities, buyer creditworthiness, and contract security are essential. This article provides you with a comprehensive overview and practical tips to make your property sale successful and hassle-free. Learn how to avoid common mistakes and realise the optimal value of your property.
Understanding the basics of payment processing in real estate sales
When selling a property, the payment terms are detailed in the sales contract. Typically, the purchase price is settled with a one-time payment. However, there are alternatives such as instalments or even a property annuity, which can be sensible in individual cases. The entire payment process in Germany is necessarily accompanied by a notary to ensure legal security for both parties. A key role is played by the notary’s payment due notification. This only occurs once important prerequisites, such as the entry of the priority notice in favour of the buyer in the land register, are fulfilled. The priority notice secures the buyer's claim to the transfer of ownership and prevents any alternative sale of the property by the seller. For an initial assessment of the financial aspects of your sale, a comprehensive property valuation can be very helpful. Understanding these fundamentals is the first step towards a secure sale.
Do not underestimate the importance of buyer creditworthiness
The financial reliability of the buyer is crucial for a successful property sale. A failed sale due to the buyer's insufficient creditworthiness not only results in a loss of time but can also lead to financial losses as the property needs to be marketed again. Both seller and buyer are jointly liable for certain additional costs such as land transfer tax and notary fees. If the buyer cannot cover these, the seller may be held accountable. Therefore, a thorough check of the buyer's creditworthiness is essential. Common methods for this include requesting a self-disclosure (e.g., SCHUFA report) or financing confirmation from the buyer's bank. A SCHUFA report provides information about payment behaviour and existing loans but does not contain direct information about income and assets. More comprehensive information is offered by credit agencies like Bürgel or Creditreform. The provision of accurate documents is crucial here. Early clarification of creditworthiness protects you from unpleasant surprises.
Contract Safeguards: Maximum Security for Both Parties
A notarised purchase agreement is a legal requirement in Germany for property sales and forms the basis for legal protection. The notary acts as an impartial intermediary, ensuring that the interests of both buyer and seller are upheld. Important clauses in the purchase agreement serve to protect both parties. This includes the previously mentioned priority notice, which protects the buyer. For the seller, the submission to immediate enforcement is an important safeguard: if the buyer does not pay the purchase price on time, the seller can proceed with enforcement without lengthy legal proceedings. Payment of the purchase price usually occurs after the notary's request, typically within a period of two weeks. The detailed contract design is thus a key element of a secure sale. A precise understanding of the contract details is essential for a smooth process.
Key Elements of Contract Security
For a secure property sale, the following points should be clearly regulated in the contract:
Exact description of the purchase object and the purchase price.
Regulations regarding the due date of the purchase price and the method of payment (e.g., direct payment or through an escrow account).
The timing of handover and transfer of ownership.
Regulations regarding existing encumbrances in the land register and their removal.
Agreements on warranties for material defects.
The aforementioned priority notice and submission to immediate enforcement.
Allocation of incidental costs (e.g., notary and land registry fees, property transfer tax).
These elements significantly contribute to legal protection in house sales.
Payment terms in detail: From one-time payment to escrow account with notary
The most common payment modality is a one-time payment of the entire purchase price once the conditions for due payment are met. Since 1 April 2023, cash payments for property purchases in Germany have been prohibited to counter money laundering; the purchase price must be paid in a non-cash way, such as by bank transfer. Proof of the non-cash payment must be presented to the notary; otherwise, there may be delays in transferring the ownership. An important role can be played by the notary escrow account. This is a trust account managed by the notary, into which the buyer deposits the purchase price. The notary only disburses the amount to the seller once all contractual conditions have been met, particularly the registration of the buyer as the new owner in the land register. Setting up a notary escrow account is not always mandatory – often a direct payment to the seller occurs – but it provides additional security, especially when the transaction is more complex, such as financing through multiple banks. The costs for a notary escrow account depend on the purchase price and are regulated by the Court and Notary Fees Act. A comprehensive financial advisory service can help buyers choose the payment method that suits them best. Choosing the right payment modality is an important step.
Dealing with Payment Delays and Failed Financing
Despite all precautions, it can happen that a buyer defaults on payments or the financing falls through. If the buyer is in arrears with payment, the seller can demand default interest. Thanks to the enforcement clause in the notarised purchase contract, the seller can enforce the claim directly without having to instigate a lengthy court process. As a last option, the seller also has the right to withdraw from the purchase contract if payment fails to occur, although a reasonable grace period usually needs to be set for this. The costs arising from unwinding the contract must generally be covered by the defaulting buyer. To minimise the risk of a failed sale, an early and thorough credit check of the buyer, as described in Section 2, is crucial. If you are unsure about how to proceed in such a situation, Auctoa's ImmoGPT chat can provide an initial guide or you can contact us for professional advice without commitment. Good preparation helps to avoid such scenarios or to handle them confidently.
Keeping an Eye on Additional Costs: A Factor Not to Be Underestimated
In addition to the pure purchase price, there are various ancillary costs involved in buying and selling property that can often amount to 12 to 15 percent of the purchase price. The most important ancillary costs include: notary fees and land registry entry (approx. 1.5 percent of the purchase price), the land transfer tax (depending on the federal state, 3.5 to 6.5 percent) and possibly broker's commissions (often shared, approx. 3 percent plus VAT per party). The land transfer tax is a one-time payment, while the property tax is levied annually by the municipality. Since the end of 2020, the broker's fees for the sale of apartments and single-family houses are generally shared between buyer and seller. It is essential to factor in these costs early on to avoid financial bottlenecks. A detailed breakdown of all expected costs within the framework of property financing is therefore indispensable. A transparent cost breakdown is part of a reputable sales process.
Typical ancillary costs when buying property at a glance:
These costs should definitely be included in buyers' calculations:
Notary and land registry costs: About 1.5% to 2% of the purchase price.
Land transfer tax: Varies depending on the federal state between 3.5% and 6.5% of the purchase price.
Broker's commission: If a broker is involved, it is usually shared (legal regulation since Dec. 2020 for residential properties). Typically about 3.57% including VAT per party.
Financing costs: Possible commitment interest or fees for the registration of land charges.
Moving costs: Depending on the distance and scope of the move.
Modernisation/renovation costs: Particularly to be planned for with older properties.
A precise knowledge of these items helps with realistic financial planning.
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The notary plays a central role in the entire real estate sales process in Germany. Their involvement is legally required to ensure legal certainty for all parties. The notary is obligated to maintain neutrality and advises both buyers and sellers independently on the legal aspects and risks of the transaction. Their duties not only include notarising the sales contract, but also overseeing the correct execution. They obtain necessary permits, apply for the priority notice in the land register, and later the change of ownership. Additionally, they inform the parties about the content of the contract and ensure they understand the implications of their declarations. If needed, the notary manages the purchase price in a notary escrow account. The careful examination of the contract by the notary is an important safety measure. The comprehensive activity of the notary is a guarantee of an orderly sale.
Conclusion: With the right preparation for a secure property sale
Why is notarial certification mandatory for property sales?
Notarial certification is legally required to ensure legal security for both buyers and sellers. The notary reviews the contract, explains any risks, and oversees the correct procedure until the property transfer is recorded in the land register.
What additional costs typically arise when purchasing property?
Typical additional costs include notary and land registry fees (about 1.5-2% of the purchase price), property transfer tax (3.5-6.5%, depending on the federal state), and possibly broker commissions. Altogether, they can amount to 12-15% of the purchase price.
What is the priority notice of conveyance?
The priority notice of conveyance is an entry in the land register that secures the buyer’s claim to the property transfer after the purchase contract has been notarised. It prevents the seller from reselling the property to someone else in the meantime.
Is cash payment of the purchase price still possible?
No, as of 1 April 2023, cash payments when purchasing property are prohibited in Germany. The purchase price must be paid by non-cash means, such as bank transfer, and this must be verified by the notary.
How long does it take from the notary appointment to the payment of the purchase price?
After signing the purchase contract, it usually takes four to six weeks for all conditions for the due payment to be met (e.g., entry of the priority notice of conveyance, deletion documents for encumbrances). The notary then typically sets a payment deadline of about two weeks.
What can I do to protect myself from an insolvent buyer?
Request a credit check early on (e.g., SCHUFA report, bank financing confirmation). Ensure that there is a foreclosure submission clause in the purchase contract. A down payment or the use of an escrow account can provide additional security.
Additional useful links
Bundesministerium der Justiz und für Verbraucherschutz provides on its platform "Gesetze im Internet" the full text of the Bürgerliches Gesetzbuch (BGB), which includes essential legal foundations for property sales.
FAQ
Why is notarisation mandatory when selling a property?
Notarisation is legally required to ensure legal certainty for both buyers and sellers. The notary reviews the contract, informs about risks, and oversees the correct processing until the title is transferred in the land register.
What additional costs are typically incurred when buying property?
Typical additional costs include notary and land registry fees (around 1.5-2% of the purchase price), the property transfer tax (3.5-6.5% depending on the federal state), and possibly broker commissions. Altogether, they can amount to 12-15% of the purchase price.
What is the priority notice?
The priority notice is an entry in the land register that secures the buyer's claim to the transfer of ownership once the purchase contract has been notarised. It prevents the seller from selling the property to someone else in the meantime.
Is it still possible to pay the purchase price in cash?
No, since 1 April 2023, cash payments for property purchases in Germany have been prohibited. The purchase price must be paid non-cash, for example, by bank transfer, and this must be proven to the notary.
How long does it take from the notary appointment to the payment of the purchase price?
After signing the purchase contract, it generally takes four to six weeks for all conditions for the purchase price to be met (e.g. registration of the priority notice, deletion documents for encumbrances). After that, the notary usually sets a payment deadline of about two weeks.
What can I do to protect myself from an insolvent buyer?
Request a credit check early (e.g., SCHUFA report, bank financing confirmation). Pay attention to a clause on submission to foreclosure in the purchase contract. A down payment or the use of a notary escrow account can offer additional security.
