What is the property tax?

Homeowners, apartment owners, land owners, all are subject to property tax in Germany. The property tax is incurred annually and is calculated by the tax offices, more precisely the location tax office.

Property tax for owners of:

• Houses
• Condominiums
• Land

How to calculate the property tax?

Calculation in 3 steps – To calculate the amount of property tax, for a single property, there is a formula with 3 steps. First, you need the assessed value, simply put, the valuation from the tax office for your property.

Step 2 is the property tax rate, simply put, depending on the type of property you own, the value will be higher or lower. Example: In a semi-detached house, the property tax measurement number is slightly lower than a detached single-family house. Step 3 is the property tax assessment rate. This is set individually by each municipality. In this way, municipalities can also make themselves more attractive to house builders and capital investors, for example.

Formula:

• Determined assessed value x real estate tax rate x real estate tax assessment rate

The basis is the assessed value – the higher the assessed value of your property, the more property tax you pay, compared to the other owners in your community.

Property tax quickly explained

Let’s quickly summarize the property tax again, with the main apsects.

Property tax quickly explained:

• Annual tax on real estate
• Step 1 – Assessment basis = assessed value (valuation of your property by the tax office)
• Step 2 – Property tax rate : Property type
• Step 3 – Property tax assessment rate: Municipal assessment rate

Change due to real estate tax reform

1. Revaluation of ~ 35 million properties
2. Uniform evaluation by the federal government
3. Property tax C as a new category

Revaluation of ~ 35 million properties

Property tax has always been controversial since its introduction in 1998. This is because the basis for the valuation according to the BewG (Valuation Act) are outdated values from 1964 (old federal states) and 1935 (new federal states).

In 2018, the Federal Constitutional Court therefore ruled that there must be a fundamental reform of the property tax. It is to be implemented by 31.12.2024. Therefore, owners are now receiving letters from their tax offices, with a request to submit current data, for the revaluation of the properties.

• Old values from 1964 (old BL) and 1935 (new BL)

Read more about the methodology of the assessment here:

• Income capitalization approach
• Material value method

Uniform evaluation by the federal government

• Planned: Uniform federal evaluation methods
• Current: Different valuation methods in federal states

Property tax C as a new category

Still there are 2 types of property tax, property tax A and property tax B. Property tax “A” is used for land with agricultural and forestry use or short for agricultural. Property tax “B” you use for other developed and buildable land, so everything with building use.

With the property tax reform, there will be another category, the property tax C.

• Land tax “A” – agricultural use (land with agricultural and forestry use)
• Property tax “B” – building use (other developed and developable land)

Property tax “C” separates the previous property tax “B” into 2 parts. in property tax “B” will remain all other, developed land. Property tax “C” will be only for detached properties. That is, land that is not built on, but for which a permit has long been in place.

The aim of property tax “C” is to create new living space. Vacant land that is likely to be built on can thus be given its own (even higher) levy rate.

• Property tax “C” – detached building plots

Check apartment and house: Important criteria

During the technical inspection, you personally make an overview of the condition of the property. Important, if you are not able to assess technical systems, take a person with the appropriate know-how with you to the inspection. You should pay attention to this during the technical inspection of the apartment and house:

Windows, exterior walls & co: condition and sealing

Particular attention should be paid to the windows. Depending on the year of manufacture, they may have certain defects. You should pay particular attention to the seal, otherwise moisture can creep in. The same applies to the exterior walls. Our tip: Take a measuring device with you and carry out a moisture measurement.

Here is an overview:

• Windows: condition and seal
• Exterior walls: check moisture
• Fuse box / electrical subdistribution
• Bathroom: condition and furnishings

Bathrooms and sanitary facilities: Moisture Check

In addition to the fuse box, you should also look at the bathroom. Check the toilet, sink, bathtub and shower for proper function. Moisture plays an important role, especially in the tiles and silicone joints. Otherwise, mold can quickly accumulate here.

This is what you should check during the bathroom check:

• Sanitary facilities
• Tiles
• Silicone joints
• Instantaneous water heater
• Water pressure
• Bath ventilation

Checking community property: Important criteria

If you decide to buy a property as part of a WEG (homeowners’ association), you should also look at the common property. Here it is important to note the following:

Facade, roof & basement: condition and moisture

Look at the condition of the facade as well as the roof and the basement. If there are other common areas, you should also look at them. You should pay particular attention to dampness and mold.

Here is an overview:

• Facade
• Roof & attic
• Basement
• Heating system
• Electric meter cabinet

Consultation with residents: defects & modernization measures

Our tip: Talk to the residents of the WEG and let them tell you about problems and defects in the house. Also ask whether and which modernization measures are planned, as you as a resident of a WEG must expect future costs here.

Checklist: Technical check

Here, once again summarized, the – typical – 10 test points in short form:

1. Windows: condition and seal
2. Exterior walls: check moisture
3. Fuse box / electrical subdistribution
4. Bathroom: condition and furnishings
5. Facade
6. Roof & attic
7. Basement
8. Heating system
9. Electric meter cabinet
10. Future modernization and maintenance measures

Buying real estate: Learning from A-Z

Everything from A-Z: owner-occupancy or renting, financing a condominium, apartment search, real estate portals, brokers, valuation, purchase prices, negotiations and taxes. Knowledge and experience from experts, in one guide.

✓ A guidebook
✓ All facts
✓ Insider tips
✓ Purchase checklists

Learn step-by-step the home buying process and lots of insider tips!

• Buy apartment

Material value calculation – simply explained with the most important tips

Buildings and outdoor facilities are valued for the asset value. The asset value method is primarily used for properties not traded on the rental market. Tangible values are determined for owner-occupied single-family houses, whereby the property is also valued using the comparative value method.

The calculation first uses the standard land value to determine the market value of the land, then the real value of the building is added.

The real value of the building is calculated on the basis of the building’s production costs less any reductions for age. The real value of the land (market value of the land) and the real value of the building are added together and multiplied by a real value factor.

The calculation of the asset value factor is based on the building type, the preliminary asset value and the standard land value. The total tangible asset value determined in this way indicates the financial resources that would be required to rebuild the property.

Calculation example: tangible value

For the calculation of the tangible value of a property, we assume the following data as an example:

• Land value: 100.000 Euro
• Real value of the building: 150,000 euros
• Material value factor: 0.5

This results in the following calculation:

Value in kind = (100,000 Euro + 150,000 Euro) * 0.5 = 125,000 Euro

When does the asset value method find the most application?

The asset value method is the most frequently used valuation method for owner-occupied real estate. The asset value method is used to determine the value of owner-occupied condominiums, single-family houses and two-family houses separately from the value of the associated share of the land. It is one of the most complicated procedures, because special circumstances, such as damage or the need for renovation, are also included in the determination of the asset value and reduce the value accordingly. The land value is determined using the standard land value table for the respective region.

Valuation for the sale of real estate

All important information about the valuation of real estate sales summarized for you: Valuing a property.

Income approach: Breakdown of market value & building income value

The capitalised earnings value method divides the property into the market value of the land and the building income value.

Land value interest = 7 percent * 100,000 euros = 7,000 euros

Building income value = 5,600 Euro * 12.50 (multiplier) = 70,000 Euro

This includes rental income, maintenance costs and costs for managing the land and building. Accordingly, the rental income less the management costs and the land value including its interest are compared.

• Capitalised earnings method

Comparative value method: Comparison of similar properties

The comparative value method compares your property with similar properties. It is used in particular for the sale of owner-occupied apartments and houses. The comparative value can also be determined for undeveloped land.

Price per square metre of the comparable property = 300,000 Euro / 100 sqm = 3,000 Euro per sqm

Purchase price of the property to be valued = 3,000 Euro * 200 sqm = 600,000 Euro

Only properties in similar locations and with a comparable layout are considered in the comparison. The properties included in the valuation should come from the immediate vicinity of the residential property. The comparative value method is considered to be particularly realistic. It is frequently used to determine the value of properties because the locations are relatively comparable from a regional point of view.

• Comparative value procedure

Value appraisal (costs)

Who prepares appraisals for real estate? What does a house appraiser cost? What does an appraiser for old buildings cost? Unless legal regulations require the appointment of an expert, a real estate appraisal will provide you with a realistic valuation of your property in the regional and national market. We provide timely and accurate valuations of land, residential and commercial properties.

However, if the valuation is to be presented in court, for example in the case of a divorce, experts must be consulted for a fee. The residential or rental property is inspected on site. As a rule, both a written and a digital copy of the appraisal are issued.

• Valuation report