Commission agreement for renting and purchasing real estate

What does the commission agreement cover? Under what conditions is a commission due? You can find out this and everything else about the broker's commission here. Was a property successfully brokered? Then, as a rule, a broker's commission is due. This is the broker's compensation for brokering the property.

But who pays the commission, how high is it, and how can you, as a tenant, owner, or broker, review a commission agreement? You can find out this and everything else you need to know about commission claims in the real estate sector in this article.

What is a commission?

The commission, also referred to as the broker's fee, is a financial share in a brokered transaction.

A commission is usually variable and linked to the revenue generated. This means that the commission is usually expressed as a percentage. For example, it could be a percentage share of 7 percent. With a sale price of 500,000 euros, the broker's commission would be 35,000 euros.

The effective amount of the fee is specified in the commission contract. Brokers working on a commission basis, mostly in field service, receive the fee when they have successfully brokered a property.

When do brokers receive a commission?

Hiring a broker does not automatically create an entitlement to a broker's fee. The commission contract regulates the details.

To ensure that brokers are not left with just a promise of commission, certain conditions must be met. Only then do they have an enforceable claim to a commission in accordance with § 652 BGB (German Civil Code).

Requirements

• A valid employment contract has been concluded regarding the broker's activity.

• The broker has provided the service (brokerage) agreed upon in the brokerage contract.

• A lease or purchase agreement has been concluded.

• The broker's efforts have causally led to the conclusion of the contract.
  
  
  

All agreements regarding the commission, such as entitlement, amount, or due date, should be recorded in writing in a brokerage or commission contract.

Commission claim upon sale

There is no statutory regulation regarding the amount of the broker's commission for purchase properties in Germany. The customary local commissions differ from region to region.

They are generally between three and eight percent of the purchase price. Ultimately, the amount of the commission can be freely defined in the brokerage contract and is therefore a matter of negotiation.

Since 2020, the broker's commission must be split between the seller and the buyer.

Commission claim upon renting

When renting, the amount of the fee is dependent on who hired the broker.

For home seekers, the maximum commission is two net cold monthly rents plus VAT (§ 3 sentence 2 WoVermRG).

If the landlord is the client, the commission is negotiable and can also be higher.

Who pays the broker's commission?

Who pays the broker's fee depends in Germany on whether it is a property rental or a purchase or sale.

Broker's fee for renting

Since the introduction of the ordering principle (Bestellerprinzip) on June 1, 2015, the party who orders the real estate agent, usually the landlord, pays the broker's commission.

This is intended to relieve tenants. In the past, they usually had to pay the broker's fee themselves when they concluded a lease agreement.

Deviating provisions in the commission contract are not permitted. However, some landlords demand high compensation payments, for example, for a fitted kitchen. In this way, they attempt to cover the brokerage costs indirectly via the tenant, although the law forbids such evasions.

Broker's fee for property purchase and sale

In 2020, the draft for the new regulation of the broker's commission was accepted. This stipulates that the broker's fee must, in principle, be shared between the buyer and the seller.

The goal is to relieve property buyers from ancillary acquisition costs. According to this law, three scenarios are possible for how the broker's commission can be regulated:

• The broker, acting as an intermediary, concludes a contract with both the buyer and the seller. A double commission is agreed upon, whereby each party pays 50 percent of the fee. The broker acts for both parties (§ 656c BGB) and enters into an employment relationship with both. Important: If the broker agrees with one of the two parties not to demand a fee, they may not demand a fee from the other party either.

• Only one party (buyer or seller) concludes a contract with the broker. Since the other party also benefits from the broker's intermediary service, they can agree or be required to pay a share of the commission (a transfer of a maximum of 50%). However, the broker only acts for the party with whom they concluded the contract. Important: The client must pay their share first and prove it to the second party (§ 656d BGB).

• One party pays the full broker's fee. If the seller and the broker agree on a so-called internal commission (seller's commission), the seller pays the entire commission including VAT. The broker can then offer the property to the buyer commission-free. If, on the other hand, a buyer gives the broker a search mandate and the broker does not have a suitable property in their portfolio at that time, the buyer and the broker conclude a contract for an external commission (buyer's commission). The fee is then paid solely by the buyer, for whom the broker carries out the search.

The new draft for splitting the commission for real estate transactions only applies to the purchase or sale of apartments and single-family homes. This regulation applies if the buyer is also a consumer (§ 656b BGB).

However, the regulation does not apply to transactions involving multi-family homes, commercial real estate, or mixed-use properties. Undeveloped plots of land are also excluded from this law.

How high is a broker's commission?

The amount of the broker's fee is specified in the commission agreement. Depending on whether it is a rental or a sale property, the amount of the commission can additionally vary.

When is the commission due?

The contract stipulates that the fee for the broker becomes due after the conclusion of a lease agreement or a notarized purchase contract. Usually, the payment deadline is two weeks after the signatures. The exact date of the due date is specified in the contract and on the invoice.

A binding purchase offer, signed by sellers and buyers, is already considered a successful brokerage. At this point, the broker can issue the invoice. Even if the contracts are signed later, this is permissible.

How you can negotiate the fee

Under certain conditions, commissions definitely offer room for negotiation: If the expected effort for the broker is rather low (e.g., in metropolitan areas like Berlin or Munich), the broker might agree to a compromise with the seller.

On the other hand, if the property is difficult to sell, the buyer has a good chance during negotiations. The higher the effort for the broker and the worse the market chances for the buyer or seller, the more likely the broker is to enforce their demand.

In the case of rentals, brokers in the field rarely allow negotiations, as the fee often barely covers the costs.

When is no commission due?

A commission agreement is inadmissible if neither the broker nor their representative was involved in concluding the contract. This happens when clients establish contact with customers themselves and sell the property. What matters is whether the services described in the commercial agency contract were rendered. Without proof of the broker's activity, no commission entitlement results from the business relationship.

Are companies affected by the new regulation of the broker's commission?

Buyers in the form of a company are not affected by the new regulation of the broker's commission (as of May 2024). The law on the distribution of broker costs in the brokerage of purchase contracts for apartments and single-family homes only applies to private buyers and sellers. Commercial real estate transactions are excluded.

Is the commission agreement negotiable?

For rentals, the commission is rarely negotiable, as it usually only covers the costs. When selling a house, the client can agree on a lower commission if the property is easy to sell. Buyers have a better chance of a lower fee if the property is difficult to sell or if the brokerage contract is due to expire soon.

What does a commission agreement contain?

A commission agreement defines when and how the broker receives their commission. It includes the amount of the commission and the due date. The contract states that the commission is due after a lease or purchase contract is concluded. The agreement also describes the broker's activities. Each side benefits from a clear, written arrangement. This avoids misunderstandings and disputes. Template: Commission contract.

What does the new law on broker's fees say?

Since December 23, 2020, sellers and buyers must usually split the broker's fee. The law primarily relieves buyers in federal states such as Hamburg, Berlin, and Hesse. It stipulates that a brokerage contract must be concluded in writing. In the case of shared commission agreements, each party pays 50 percent. Buyers acquiring real estate for private purposes benefit from this regulation.