Do you plan to buy or sell real estate and need a property valuation in Germany? An accurate value appraisal ensures you get a fair price for the apartment you want to buy or sell. It is important that you understand how property valuation in Germany works to get the best deal.
If you plan on buying a house using a German bank loan, the bank will perform their own appraisal and write the data in the mortgage offer. However, it is important that they appraise the property independently. With a positive value check, you can get the mortgage offer and validate it before signing the purchase and sale agreement.
If you are the seller, a qualitative property valuation in Germany ensures you get your home’s worth when you sell it. It will allow you to get the right market price and prepare for an effective property selling process in Germany.
Property valuation methods in Germany
Real estate valuation methods used in Germany are the same ones used in other major markets in Europe:
The Cost approach
This method refers to the estimation of the cost to build a similar property in the same location. This means that you add the cost of buying the land at current offer prices to the cost of constructing an alike house or apartment building. The cost calculation has to take into account the same standards (size, bathroom & sanitary elements, flooring, heating system…) and the land has to have a similar size and locations. For instance, if we value a luxury apartment, we need to calculate the cost of alike upscale construction materials. This method is quite interesting to get a fair valuation of a land, house or a building for instance. However, the cost approach hits serious limits when it comes to a house or apartment located in the city center where there are no possibility of getting a new land plot at whatever sale price!
The Income value approach
This real estate valuation method consists of capitalizing future income generated from the rent, hence it’s more appropriate for investing properties. The future income consists of the net rent income and the expected worth appreciation. The net rent income is calculated by deducting HOA, management, services and maintenance fees from the warm rent. The expected value appreciation is based on the buyer subjective assumptions related to the property market development. For example if you buy an investment property in Berlin, you can not only bet on the rent income but also on the worth increase as future income, giving that Berlin has registered double-digit price growth last years.
The Sales comparison approach
This is the most used value assessment method when it comes to self-use apartments in city centers. It consists of benchmarking the property to recently sold properties (or currently listed ones) in the area. This valuation methods offers the advantage to capture the last market trends and price developments in the neighborhood. For example, if the task is to value an apartment in Berlin-Prenzlauer Berg, the appraiser has to look for comparable apartments there or adjacent areas like Friedrichshain (but not in Charlotteburg!) It is the most used method used by agents when it comes to value apartments large German cities such as Frankfurt, Hamburg, Stuttgart, Cologne and Munich.
Which factors are key to value a property in Germany?
There are many factors that determine the value of a property in Germany. Some value factors are related to the general market and reflect the offer and demand for properties both in the city and the immediate surrounding.
We can split the main valuation drivers in Germany into 5 categories:
General market conditions
When buying a property, mortgage rates and real estate prices’ trends matters a lot not only for the buyers but also for the landlords. There is no exception for real estate valuation in Germany. Indeed, low interest rates and strong demand for housing will benefit indirectly to the seller because he can get to get the highest sale price.
At the opposite side, if interest rates soar like recently, since the war started in Ukraine, buyers in Germany have higher monthly instalments on their mortgages so that they can afford less purchase power and budgets.
The increase of residential German mortgage rates in results into shrinking the affordability of properties and hence number of candidates for a property purchase. If the mortgage rates continue to increase, this will have a negative impact on selling prices and real estate valuation in Germany.
Demand for the area, facilities and transports, general prices of the area, demand for the micro-locations and immediate surrounding is nice and sought-after…Location of your house will have quite an important impact on your property appraisal in Germany. Location can fall into micro or macro layers. Micro layers point to the nearby environment and amenities, such as shops, amenities, places to go out, parks, , cafes, and other businesses near the house. The macro environment is the wider surrounding, such as the district.
Valuers might also consider the projected growth of the location, including addition of roads and new traffic connections. However, addition of a busy road just in front of your premises will diminish its worth. Further, value assessors consider the worth of other properties in the area based on recently sold apartments, houses or building in the vicinity neighborhoods.
Lastly, the city also determines the value of the house. The rules and regulations of the property market and prices in Berlin are different from the ones in other cities such as Berlin, Stuttgart, Munich, and Hamburg