Additional Fees When Buying a House?

Everyone knows that you will pay money to another homeowner when you purchase your house, and for a long time as part of your mortgage interest. You will likely be aware that there are some fees that you will pay to a realtor in case you have hired one. Yet there’s many additional fees you can expect on top of that. In general, a rough estimate is that these costs are usually between 3 and 6 percent of the total purchase price of the home.

• Additional 3-6% of total purchase price

That means a $1 mil. home can incur $60.000 additional costs on top of the purchasing price.

$1 mil. House = $60.000 Additional Costs

People like to call all these costs closing costs, yet taken strictly, closing costs are all costs which occur at a point of sale of real estate, which are not the basic value of the real estate. This does not include e.g. furnishings or mortgage insurances though. Below all additional closing costs as well as additional fees which you may incur when buying a home.

All Fees – List

Below we shed some light on what the fees are which a buyer will have to deal with, who pays these, and why these are paid. Here we list the most important ones:

Earnest Money – Real Estate Deposit

The first expense you will incur when buying a home is called “earnest money”. It is a form of downpayment, a deposit paid by a future buyer which demonstrates the seriousness of his or her intentions to purchase a property. It is usually paid to a broker or agent, and held in an escrow account until the purchase is completed. It is later used to pay for the down payment or closing costs.

That is, unless the deal fails and it is found to be your failt. If this is not the case, and the deal falls through for reasons out of the buyer’s control, he or she will be refunded the money. Typical ‘earnest money’ deposits in the USA range from $500 to $2,000.

• Between $500 and $2,000

Down Payment – Beginning Mortgage

Everyone’s heard of down payments, and they’re vital to understand. A down payment is a portion of the total price of the home which you pay at the point of sale. As most people cannot pay the full sum of the real estate at the point of sale. It typically works as follows: an individual pays a downpayment to the seller of a piece of real estate. A financial institution, such as a bank, will pay the seller the remaining amount, and receive scheduled payments from the buyer. These scheduled payments form part of a mortgage, read more in our article

• Mortgage Explained – Easy, How-to, Definition, More

How much is a Down Payment?

In the U.S., the rates vary, but the typical rate is 20%, with 5% or less being rare, but still possible. The higher this percentage is, the less an individual is typically going to borrow from the bank, and therefore the lower the interest rates will be on the money needed to pay back. Additionally, the more that is paid, the lower the amount on which interest is collected. E.g. if the rate is 20%, you pay less if this is 20% of $200.000 than if it is 20% of $800.000.

• 5%-20% of Purchase Price

Taxes you Have to Pay Buying Real Estate

There are a few taxes which you need to pay when purchasing a home. These include mortgage taxes, property taxes, and transfer taxes. These are not universal across states, and need to be regarded as a critical part of the additional costs you pay when buying a home. We have a full article on the matter giving simple details

All Taxes You Have to Pay when Buying a Home

Mortgage Insurance – Real Estate Safety Net

Mortgage insurance, not to be confused with mortgage tax, is an insurance on being able to pay your mortgage. Typically this is only required if you make a down payment less than 20% of the original purchase price. Also called private mortgage insurance or mortgage insurance premium (the same thing, but when you receive a mortgage through the Federal Housing Authority). Additionally, those receiving a loan over the department of veteran affairs are not required to pay mortgage insurance of any kind.

How much is Mortgage Insurance?

The rates of mortgage insurance are typically between 0.55% to 2.25%. This percentage is calculated as a proportion of your loan. For example, a loan totalling 2 mil. with a mortgage insurance rate of 2% will be $40.000. Additionally, these are typically paid annually.

• 0.55% to 2.25% of total Mortgage

Furnishing – Critically Underestimated

Actually putting your furniture is an often underestimated part of buying a new house. Although irrelevant for those merely seeking to spread investments, for home owners, these can be substantial sums. The costs of moving into a new house can be on average up to $35.000. Moving costs on average between $1.100-$5.630 for the average homeowner, and for those buying properties in the millions, this sum is substantially larger. These include a thorough professional cleaning of the new house, hiring movers, which can costs up to 50$/hour adding up to thousands. Then supplies to move such as a blankets, or paint to paint walls, as well as hired painters. The list goes on.

• Up to $35.000

For property investors looking to rent out their property, even more significant costs can be expected. With sums of $10.000 to be expected for an unfurnished house, homebuyers often do not calculate this into their expected costs.

Discount Points: How to Reduce your Mortgage Payment

Discount points are also called mortgage points, upfront points, or just points. These are not mandatory, but if paid offer considerable advantages, given that there is not a low loan rate. The buyer pays a certain amount to the seller, which then enables the buyer to lower the interest rate on their mortgage. These can be used similarly on conventional or government loans. If you invest in one discount point, you are able to reduce your interest rate by 1%.

• 1 discount point = 1% less interest

When to Buy Discount Points

It is advantageous for a buyer to invest in discount points when two factors come true

1. The buyer intends to own the property for a long time, which means that the interest will be paid for a long time. A discount point would then mean leass dollars paid each month, and over many years this would be worth it.
2. If you plan on paying your mortgaeg off in the designated time period or longer. For persons who intend to pay an e.g. 10 year mortgage off in 5 years, a discount point would be worth it.

What is an Escrow Fee?

This is a fee which is paid to the title company, escrow company, attorney, etc. who helped the buyer close the sale. Like most other closing costs, these are a percentage of the sales price. Often teh value of which is split between the buyer and the seller.

This fee goes to the escrow agent who helps you close. It can vary based on the purchase price of the home, but it is paid to the party who handles the closing: the title company, escrow company or an attorney, depending on state law.

Title Search Fee – Paid to Title Company

The title search fee is another closing cost. It pays for the work which the title company (an organisation which typically the buyer has hired) does in ensuring that there are no issues in ownership or past disputes. This is an aspect of closing costs in which it is quite simple to reduce costs by investing time to identify high quality and low-cost companies.

Survey/Appraisal Fees – Land Inspection

You will need to be have an official and registered survey and appraisal of a property for the lender. If an existing survey of the land you wish to purchase cannot be procured, a new survey must be carried out to determine the exact boundaries of the land. These usually cost about $500. For the appraisal, you pay a certified appraiser to determine the value of the house. Most lenders require this, this usually costs between $300 and $400.

• Between $300-$400

Property Tax – Pro Rata at Purchase

Property taxes must be paid pro rata at the point of sale. This means it is included in closing costs. For a full overview about this and other taxes, such as the recording tax (also called recording fee or notarization fee) refer to the full article

• All Taxes you Pay when Buying a Home

Origination Fee/Loan Origination Fee

Part of the mortgage closing costs, this fee covers administrative costs for processing a loan, and is usually 1% of the loan amount. Some lenders do not charge this, and instead have a higher interest rate. It is important to know that, often, these fees can be itemized in your final statement.

• Cost about 1%

Homeowners Insurance – Extra Security for Home

Just like with property taxes, when buying a home, you are required to pay a pro-rated share of the homeowners insurance. That means you need to pay ahead for a given time period. This time period is generally one year. Because you pay the insurance premium, the cost depends on the insurance of the house

• One year Insurance Premium

Attorney Fees – Should I get an Attorney?

These won’t be necessary everywhere, or with every purchase. Some states require an attorney to oversee the purchase of the house, and in some situations the buyer may want an attorney for other reasons. These attorneys take fees of course, and when purchasing a property, you will need to pay them. Attorneys are actually mandatory when buying property in New York.

Title Insurance – Protecting Against Claims

Title insurance is intended to protect both the lender and buyer from claims. These claims may be against the house in the case of the lender, and for the buyer prootection against past contractors making claims.

Lender’s Title Insurance

The lender title insurance is a one time fee paid at time of closing. It is paid to the title company, to protect in the case of an ownership dispute, e.g. when a lien arises that was not identified in the title search. This fee is usually betweeen 0.5 to 1% of the loan amount

• One-time fee, up to 1% of loan amount

Owner’s Title Insurance

This is an optional fee. Although you may come to regret it heavily in the case that someone does challenge the ownership. Therefore, while it is not mandatory, it is done by almost everyone, and highly recommended in any case.

Broker Fees – Commissions for Real Estate Sale

Broker fees are probably the first thing people think of when thinking about closing costs. These are also called agent comissions or real estate commissions. These are often paid by the seller, but are also usually part of the negotiations, and in a sense therefore also paid by the buyer. They are the fees which are paid to the brokers of a real estate purchase. These brokers are usually the listing agent (i.e. the seller’s agent who offers the property) and the buyer’s agent (who finds the property for the buyer, organizes, etc.). The fee is usually between 5-6% of the purchase price, meaning an additional cost of up to $60.000 if you are buying a property worth $1 mil.

• 5-6% of Purchase Price

You want to sell? Read more tips on taxes, procedure & Co. under Selling an apartment.

What influences the value of an apartment?

But let’s stick to the so-called “Pi times thumb value”, a very rough value determination. In order to determine the value of your apartment, a number of “soft” factors play a role.

Before we get deeper into the matter of evaluation of location, building fabric, market value & Co., we first ask 3 basic questions which reach us in consulting discussions with customers:

• How can I value a property?
• Who determines the market value of a property?
• How does the bank value a property?

Location, location, location: value enhancement and sales argument

This refers to all those things that you can see but cannot immediately translate into money or other value. First and foremost, this means, for example, the so-called micro and macro location of the apartment, i.e. the view of the immediate and regional surroundings. Whether your apartment is located on a busy street or in a quiet suburb, whether the surroundings of your apartment are rather middle-class or socially disadvantaged – all these “soft” conditions influence the value of your apartment.

Hard facts: Infrastructure and equipment

The “hard” factors of the micro-location include the proximity to doctors, public institutions or cultural sites. For here, the conditions can be measured at least in terms of distance and number of available facilities. Basically, the following applies here:

The closer you are to public life, the more value these factors add.

The proximity of your home to public transport is also – and certainly increasingly so – a plus point. After all, buses and trains are becoming increasingly important in urban and rural areas in the context of the climate debate. Certainly: the availability of your own parking spaces or even an underground car park also has a positive effect on the value of your apartment.

Do you know the crime rate in your residential environment? This is a real “mixed factor” of hard and soft in apartment valuation. On the one hand, this rate can be “hard” by means of figures, but on the other hand, the rate of a district does not necessarily apply to the immediate street situation of your property. Especially in this area there is a lot of “felt” security or insecurity.

Decrease in value or increase factor

These criteria have one thing in common: they cannot be converted into hard currency, or only with great difficulty. There is no exact value reduction or increase factor here. This also applies to the macro location of the apartment. In other words, the location of the apartment in a larger geographical region or a district in the case of larger cities. Even if apartments in southern Germany are generally considered more expensive than in the north, a chic apartment on Hamburg’s Alster is always worth more than in Göggingen near Augsburg, for example. An apartment – for example in Essen – is on average much more expensive in southern districts than in the north.

Checklist: Rate apartment for sale

Important when selling an apartment:

1. Take the time for the preparatory work
2. Present the apartment professionally
3. Use our service to achieve a good sales price.

Comparable values and square meter prices

In the apartment valuation we include the local square meter prices in the comparison. We determine comparable residential properties and their selling prices from nationwide and especially regional databases.

The square meter price which is usual in the industry and regionally obtained is apportioned to your free-hold apartment in the comparative value procedure. Thus you receive a realistic sales price estimate for your apartment. In addition to the comparative characteristics such as location and size of the apartment, individual furnishings and fittings are also included in the real estate value determination. Thus, conservatories or high energy efficiency can significantly increase the price. But also building damages, pending repairs or modernization measures are considered with the price determination.

Real estate prices in Germany

Here you will find a selection of the largest German cities with information on purchase prices, comparisons and development of economy and infrastructure at a glance.

Real estate prices:

• Berlin
• Düsseldorf
• Frankfurt
• Cologne
• Hamburg
• Hanover
• Munich
• Stuttgart

Criteria for the valuation

Other criteria for determining your real estate value include general information about the real estate object such as floor, room and equipment.

1. Year of construction of the object
2. Living floor
3. Number and size of rooms
4. Balcony, terrace, loggia and winter gardens
5. Community property
6. Rented apartments

Year of construction of the object

In the case of old buildings (built before 1945), renovation of old buildings increases the sales value. The price for apartments in well-preserved or renovated old buildings is often higher than the local average price. Newly built apartments are also generally valued higher. However, many apartments from the 1960s and 1970s often have to reckon with price discounts if a particularly poor building fabric is found.

• Purchase price reduction often for 60’s / 70’s buildings

Residential floor: first floor, penthouse & elevator

The higher the apartment is in the building, the higher its price. First floor apartments are less in demand and their price can be up to 30 percent below the average. If the higher-lying apartment is also accessible by elevator, the circle of potential buyers is also increased.

-30% for first floor apartments

From own experience real estate buyers are often “spontaneously in love” especially with penthouse and loft apartments. The purchase price here may definitely be slightly above the market value. With appropriate development of the attic with open space, additional, value-increasing factors are added.

Equally decisive, the higher the condominium, the sooner an elevator must be installed. Apartments without an elevator discourage many buyers nowadays, especially in the inner cities of metropolitan areas, which have many alternative real estate offers.

• Ground floor up to -30% of market value
• Loft / Penthouse increase the purchase price
• Important: elevator installation

Number and size of rooms

Rooms with at least ten square meters are counted. If it is less, the rooms are counted as half rooms. The kitchen and bathroom are not counted. In principle, apartments with many rooms are also valued at a higher price per square meter.

From experience, the number of bedrooms is what counts most. Especially for luxury properties, the number of bedrooms must be sufficient. Even singles attach importance here that sufficient capacities are available, whether they are needed after the purchase or not.

Number:

• Bedroom
• Living room
• Bath / baths
• Kitchen, walk-in kitchen
• Study office
• Walk-in closet
• Corridor / foyer

Balcony, terrace, loggia and winter gardens

Places to chill are sought after and so these additional features increase the possible selling price of the apartment. They enter with 25 per cent into the floor space calculation. In particularly favorable residential areas or with very complex organization they can be considered with up to 50 per cent as floor space.

Community property

Common property such as elevators, stairwells, roofs, doors, heating and utility lines can be very attractive special property. If the outdoor facilities are particularly well maintained or if meaningful common rooms are available, the market value of the apartment will also increase.

Rented apartments

If the future buyer cannot move directly into the new property, this often has an unfavorable effect on the purchase price. However, well-let properties are also sought after on the market. Investors take into account the expected yield of the property. Also in these cases we can help you decisively with an evaluation of your ETW.

Flat valuation online

Housing evaluation online? Many people use real estate portals for the evaluation of their apartment – but does that make sense? An algorithm can never assess the condition of your property as accurately as the human eye. Starting with the distribution of rooms with light exposure through south-north-north-east-west location, the possible further use for the buyer, the actual state of renovation, insights into the last modernization works, etc. If you generate your online evaluation online as PDF free of charge, you will receive a standard evaluation based on a few parameters.

This is not a sound evaluation! Because here never all conditions are asked in detail. This includes as described above, among others:

• Object data of the apartment
• Equipment of the interior
• Construction condition and facilities
• Modernization measures
• Individual object criteria of your apartment
• City district and local connection (school, supermarket, etc.)

If you carry out an online evaluation, you will also quickly notice that many portals also ask questions about the property, for example, when evaluating apartments: Does that make sense? No. That’s why such standardized queries usually don’t give you any relevant results that you can use to sell your apartment.

Sell? We will give you a clear assessment: Contact

Regional differences and real estate

As a real estate team with regional roots, we can only warmly recommend that you obtain your valuation from a trusted real estate agent. Here you will be asked really important questions, you will receive a free and well-founded assessment of your condominium based on truly market-relevant valuation criteria.

A simple online valuation, as it is offered on many real estate portals, can give you an insight, but not a sound analysis for the sale of your apartment.

Statistics Germany: Square meter prices

Here you can see the cities with the highest prices per square meter for condominiums in a comparison of 2010 and 2018* (in euros per square meter). More facts, figures and the development of real estate prices can be found at Real Estate Statistics.

1. Munich (Bavaria) with 8,342 euros per square meter; from 6,737 euros per square meter in 2014; increase of 1,695 euros per square meter in 4 years
2. Stuttgart (Baden-Württemberg) with 5,925 euros per square meter; from 4744 euros per square meter in 2014; increase 1,181 euros per square meter
3. Frankfurt am Main (Hesse) with 6,060 euros per square meter; from 4,373 euros per square meter in 2014; increase 1,687 euros per square meter
4. Freiburg im Breisgau (Bavaria) with 4,943 euros per square meter; from 4,740 euros per square meter in 2014; increase 203 euros per square meter
5. Ingolstadt (Bavaria) with 4,969 euros per square meter; from 4,287 euros per square meter in 2014; increase 682 euros per square meter

What are “hard” criteria for the valuation ?

Let us therefore adhere to the strict criteria in the strict sense of the word when determining the value of an apartment. And in doing so, those which you as a citizen can usually easily reach. For example, the household income of a city or district. Although there is no direct correlation between the level of household income and the value of a home, a high income means you can expect a high standard of living, high purchasing power and also a certain attractiveness of the location.

If the residential environment – in this case also seen from a regional perspective – shows a high number of different attractive employers, this hard criterion also has a positive effect on the value of the housing. Finally, one can assume that the demand for living space in this environment is quite high and thus also the value of the supply (apartment).

Among the hard criteria, which are independent of the location of the apartment, is the basic economic stability in the country. The course of economic development – also known as the business cycle – has a noticeable influence on the demand for residential property and thus also on the price.

Valuation method

A property is worth as much as others are willing to pay for it – that is the basic principle of the real estate market. Of course, the purchase price of a house or apartment depends on how much it cost to build and extend. But if no buyer can be found for a luxury villa or luxury apartment at a price that would be reasonable in view of the construction costs, the value is unfortunately still lower. However, this also applies vice versa!

A “spoiled” apartment in an otherwise passable house, but located in a sought-after environment, generates a high demand and thus a high price. With this so-called “comparative value method” you can even determine an approximate value of your apartment yourself. Comparable in the sense of the comparative value procedure would be a similar apartment in the immediate vicinity.

For this purpose, however, the value-giving “example” of the neighboring apartment should also be reasonably up-to-date. A value that was achieved ten years ago – let’s say – also reflects the market situation ten years ago.

Note: Each of the three methods will usually come to a different result!

Calculation example comparison value

Simply explained: For the calculation real estate comparative value we set exemplarily two real estates in the relationship. Based on the information on purchase price and total living space, we can then calculate the proportional purchase price for your property.

Details of the property to be valued:

• Area of the property to be valued: 200 square meters
• Purchase price of the property to be valued: ?

Details of the comparative property:

• Area of the comparative property: 100 square meters
• Purchase price for comparative property: 300.000 Euro

Income value, comparative value and material value

In the case of rented real estate, the “capitalized earnings value method” is usually the focus of the valuation. In addition to the land value of the property, the rental income and the so-called property interest rate of the property are also used for valuation.

For owner-occupied apartments, the “real value method” is also often used in addition to the comparative value method, especially in the case of luxury properties. In the foreground here is the material value of the building structures, which is derived, among other things, from the cubic meter price of the building and a building price index.

Both of the latter two methods are in any case suitable for a very precise valuation of your apartment, but in the end can only be applied by an expert. In the end, only an experienced real estate agent has an overview of the market situation with the comparative value procedure.

This is quite normal, because the underlying parameters of the valuation are different. Your real estate agent as real estate expert will then explain to you which value is the right one for you or your goals.

Costs of an apartment valuation

For the calculation, a rough evaluation is first made. The price for the final valuation is therefore, in most cases, based on the estimated value of the property to be valued.

If the value of the property is below a limit of 150,000 Euros, you can expect approximate costs of 1,500 Euros. For luxury properties or apartment buildings with a property value of more than 1 million, the estimated fee is 3,000 euros.

• Below 150,000 Euro value, approx. 1,500 Euro
• Over 1.000.000 Euro value, ,about 3.000 Euro

Source: Federal Association of Experts

Conclusion on the apartment evaluation – Checklist

The comparison of the value of an apartment in your neighborhood offers you a very good first indication for the valuation of your own apartment. In principle, the following factors increase in value:

• The location of your apartment in an attractive residential area
• The location within a conurbation or the proximity to major centers
• A quiet inner-city location, also very central in the city
• Good connections to public transport
• Short distances to supermarkets, doctors, pharmacies, authorities
• A neat living environment
• The good condition of community facilities in the house
• A high level of care for your home
• An elevator system
• Parking spaces or underground car park

A thing for experts: the valuation of your apartment

Documents for valuation

The exact determination of the housing value includes thus a quantity of basic conditions with. Even if you do not have a sale of your apartment in mind at the moment, you should compile some basic documents for an exact valuation. These documents will help the real estate agent to make an exact appraisal and create a solid basis of trust for possible future buyers.

The important documents include:

1. Extract from the land register
2. Declaration of division
3. Floor plan
4. Ground plan
5. Minutes of the owners’ meeting
6. Housing allowance statement for the last three years
7. Overview of the maintenance reserve
8. Proof of insurance
9. Energy Performance Certificate
10. Copy of the rental contract, if your apartment is rented

Even though the energy pass is always issued for the entire house in which the apartment is located, this pass allows direct conclusions to be drawn about the energy status of the apartment. Therefore, the certificate should not be missing in any valuation.

For insurance companies, only the policies that secure the actual building fabric are important. Thus fire and/or building insurances. Since the apartment is usually part of a multiple dwelling, a copy of the policy must usually be requested from the insurance company via the administrator. The insurance of your household contents is not part of the valuation!

Avoid errors in the valuation

To mention one of the most important mistakes in the (own) valuation right away: Most condominium owners have strong emotional ties to their property. Usually they do not notice this bond themselves, but unconsciously set the value of their apartment too high.

The second mistake often occurs when the sale of the apartment takes place under (time) pressure. As a result, the price is usually too low, because owners hope that this will lead to a quicker sale. Exactly for this reason, it is also sensible to let the owner determine the value of the apartment even without any concrete intention to sell. This way I can be sure that I have a solid value basis “in the drawer” when selling and also gain insight into the value development of my apartment over the years.

Even though we have mentioned the comparative value procedure as the most common method of determining the value above and referred to the price level of comparable apartments in the immediate vicinity, this is precisely where errors can occur if you use the value statements of neighbors, friends or acquaintances, or even advertisements in relevant real estate listings. Because who knows already whether the statements made represent the later reality with the sales happening.

What can a real estate agent do in the investigation?

Who is the right person for the valuation of your apartment? An estate agent or an appraiser? The answer to this basic question depends on the goal that you are pursuing with him.

You will always need an appraiser or expert if the valuation has to stand up in court – for example in the event of a divorce. An even higher level is to have the appraisal valued by a “state-approved real estate appraiser”. Then the appraisal is accepted by all authorities. No matter which of these two ways you choose: these appraisals cost money. An actual difference in quality or even the achievement of different values does not exist with either appraiser.

Also the value of the apartment determined by the real estate agent will not differ from the values of the appraisers, if both work seriously and according to the same guidelines. However, the “expert opinion” of the real estate agent will not stand up in court or other authorities. This has nothing to do with a lack of education or qualification of the real estate agent.

If you would like to appear confident and competent in front of potential buyers with a valuation report, the (usually also free of charge) opinion of an independent real estate expert or real estate agent is absolutely sufficient.

Because there is one thing that all experts should bear in mind: not everyone who calls himself an appraiser or expert is one. Pay attention with appraisers, for example, to certificates and training on the part of the Chamber of Industry and Commerce, and with estate agent appraisers to appropriate expert opinions in valuations and sales processes of apartments.

Conclusion: Apartment valuation

The value of a property, including your apartment, can be determined using various valuation methods. The results are as numerous as the possibilities, because you will always get a different result. This is quite normal and correct, as each valuation procedure is based on a different approach.

Online valuation only appearance: Simplest parameters

Why? Portals want to fill in your contact details, “free of charge” and off you go…

An online evaluation is mainly based on the location of the property and usually does not sufficiently capture the actual condition of a property. Therefore, an online valuation tends to yield only an overly optimistic property value.

The result should not be viewed too euphorically.

If you then commission a broker or other expert – including a state surveyor – to carry out a valuation, he will determine a lower market value for you.

The appraiser always determines the value on a valuation date and works with data from the recent past. While an online valuation is a free tool, you will incur costs with a certified appraiser. However, there will never be any unpleasant surprises, because the success fee is already fixed in advance.

Data from the recent past as well as forecasts for the coming months are incorporated into his evaluation. In addition, the real estate agent will discuss the value with you and recommend an advertisement price.

The valuation is the linchpin of a real estate marketing. Here you as the owner should leave nothing to chance or dare to experiment. After all, your financial future is at stake and it should be rosy.

You want to sell? Read more tips on taxes, procedure & Co. under selling an apartment.