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Information from the supervisory authority BaFin on the partial sale of real estate

With a partial property sale, you can sell part of your home without having to give it up completely. That sounds tempting. However, with such a deal, you're getting involved in many disadvantages and uncertainties, some of which are difficult to recognize.

The most important things first

A partial sale is the first step towards the subsequent sale of the entire property. A repurchase is so expensive that it is only likely to be possible in rare cases.

  • In the case of a repurchase or total sale, the part-purchase company always receives at least the partial purchase price “plus X” for its part of the property, even if the property has not increased in value.
  • You must pay a usage fee for the use of the property. If you can no longer do this, you may have to sell your home and move out.
  • Ongoing costs for the property continue to be incurred after a partial sale.
  • After the partial sale, you will receive the agreed purchase price. However, you will only see what you have left of your property in euros much later, after the entire sale has been completed.
  • No government agency will vouch for the solvency of the partial buyer. Insolvency on the part of the buyer can represent a considerable risk for you. The property may then be foreclosed if you are unable to raise the funds to buy it back. Whether you can continue to use the property under the previous conditions, even if the partial buyer is insolvent, and what happens in the event of a forced sale, depends on the provisions in your contract and how your right of use is secured in the land register. You should always seek legal advice on this.

What is a partial sale?

With a partial property sale, you sell up to 50 percent of your home to a company. At the same time, you authorize the partial sale company to sell the property at a later date. The entire sale takes place after your death at the latest. The property can be sold during your lifetime if you wish, or against your will if you do not fulfill certain contractual obligations. As a rule, you (or later your heirs) are contractually entitled to avert the whole sale by buying back the part that has already been sold.

You can continue to use the house, i.e. live in it or rent it out, until it is sold in its entirety. You will be granted a special right of use for this, usually a usufruct. You must pay a monthly fee for this use. This usage fee is stipulated in the contract, but may be increased later by the part-purchase company.

The conditions for the subsequent complete sale, a possible partial buy-back and all mutual rights and obligations that you and the part-purchase company enter into are already regulated at the time of the partial sale.

Consumer protection podcast on partial real estate sales

The BaFin consumer protection podcast ”Partial real estate sale: Rarely the best solution“.

Here Katharina Lawrence, consumer protection expert at the consumer advice center in Frankfurt, talks to Dr. Sabine Reimer, Head of Consumer Protection at BaFin.

What are the pitfalls?

A partial sale may be advertised as quick and uncomplicated. In fact, it does not deliver much of what you might expect from the advertising. Many disadvantages only become apparent later, namely when the property as a whole is actually sold to a third party. You should know the following:

The partial sale processes may give you a false impression of the sales value or achievable sales price for your property. The pivotal point of the transaction is the market value determined by an expert. This is the basis for the partial purchase price. The usage fee and other remuneration and costs are calculated on the basis of the partial purchase price, i.e. indirectly also on the basis of this market value. For the repurchase or total sale, the current market value is usually determined in a new expert opinion.

The market value is not the same as the actual current or future sales value. The market value is an approximate value. The experts have leeway in how they take certain factors into account when determining the market value. Different experts who value the property on the same date may arrive at different results. As market values are always based on the reporting date, they may be higher or lower at a different point in time.
The sales value, on the other hand, is the value that a buyer is actually prepared to pay for the property. You can only get a realistic sales value if you obtain purchase offers for the property.

A partial buyback is so expensive that it is rarely an option. Buying back your part of the property to avert the total sale is almost always only a theoretical option. This is because the price you would have to pay for the buyback may be considerably higher than the partial purchase price you originally received from the company. How high the difference is depends on your contracts.

The partial purchase price “plus X” is usually the minimum repurchase price that you must pay. If the established market value on repurchase is higher than the market value on partial sale, the repurchase price also increases. In addition to the repurchase price, you will have to pay the agreed remuneration of the part-purchase company and other costs. In particular, you usually have to reimburse the ancillary purchase costs that were initially borne by the part-purchase company. In addition, there are also incidental costs for the buyback (notary fees, the costs for the transfer in the land register and land transfer tax), which alone add up to around eight to nine percent of the buyback price.

Example: Partial buyback

Determined market value of the entire property in the event of a partial sale: Euro 300.000
Partial purchase price (33 percent of the property): Euro 100.000
Total costs for the partial buyback (depending on the specific offer* and the performance determined by an expert for the buyback), for example approx. Euro 130,000 to approx. Euro 135,000

The usage fee, which is payable monthly until repurchase, is not yet included in this calculation.
*Die Werte unterscheiden sich je nach Teilkauf-Unternehmen.

Failure to comply with certain contractual obligations may result in the sale of the property. You can continue to use the property as long as you fulfill your contractual obligations. In particular, you must pay a monthly usage fee amounting to a certain percentage of the partial purchase price. The percentage corresponds roughly to the interest rate for mortgage loans plus a surcharge. With a usage fee of five percent of the partial purchase price per year, for example, the partial purchase price received will be used up in twenty years. The user fee is usually only fixed for a certain period of time. The longer the fixed period, the higher the monthly fee. At the end of the fixed period, there may be an increase. The extent of the increase usually depends on the development of a certain interest rate specified in the contract. You cannot foresee how interest rates will develop when the contract is concluded.

If you are unable to pay the usage fee, this is a breach of contract. From a certain amount or duration of non-payment, you must accept that the company will sell the property and you will have to move out, according to the usual contractual regulations. As a rule, this also applies to various other breaches of contract. Initiating the complete sale and your move out can happen quickly. You usually have to make all the legally required declarations in advance of the partial sale.

A high partial purchase price is a disadvantage for you. A high partial purchase price sounds good. After all, you initially get a lot of money in your account. But: A high partial purchase price means high fees and costs that you have to pay to the company. These fees and costs are calculated as a percentage of the partial purchase price (ultimately based on the established market value).

A high partial purchase price increases the likelihood that you will receive less from the proceeds when selling the property to a third party than your ownership share.
This is because partial acquisition companies regularly secure their returns contractually. It is usually agreed that the part-purchase companies receive minimum proceeds that are independent of the actual sales proceeds achieved. If the price achieved when selling the entire property is lower than the minimum proceeds agreed with the part-purchase company, this is at your expense.

You should not underestimate the risk of minimum purchase price clauses. Your property must increase considerably in value for these clauses not to apply. The more time there is between the partial and total sale, the less certain it is how much a third party will actually be prepared to pay for the house at the time of sale. How the residential real estate market will develop cannot be deduced from past values. It is even less possible to reliably predict what sales price will be achievable for a particular property in the next ten, twenty or even more years in the time frame when the overall sale is to take place.

Development of real estate prices in Germany

Residential real estate prices have risen steadily for a long time. However, this can change quickly if the market situation deteriorates. According to the Deutsche Bundesbank expert, residential real estate has been significantly overvalued for several years now - not only in the major cities, but also in the landesweit. According to the Association of German Pfandbrief Banks, prices for owner-occupied residential property barely rose in the third quarter of 2022 compared with the previous quarter, while prices for multi-family homes have already fallen (see Risks in the focus of BaFin 2023, p. 9f.). Further price corrections are certainly possible in the current difficult real estate market environment.
Special factors such as the energy efficiency class of your property could play a greater role in the achievable sales price in the future.

There are considerable risks in the event of insolvency of the partial buyer: The part-purchase company usually refinances the part-purchase price and the ancillary purchase costs with a lender. It is a special feature of the “partial property sale” business model that you generally have to be involved in this. In particular, you will be required to agree to the entire property being encumbered with a land charge in favor of the lender of the part-purchase company. You may also have to agree that the lender of the part-purchase company is given a better position in the land register than you with your right of use. If the part-purchase company becomes insolvent, this land charge can become a considerable risk for you. In this case, it should at least be legally ensured that you can continue to use your home under the previous conditions. Under certain circumstances, the land charge entitles the lender to foreclose on the property. You may then have to move out. If this were to happen, you should ensure that you would not suffer any financial disadvantages, at least in comparison to the overall sale. Whether this is the case depends on the agreements made in each case. As a rule, these are not comprehensible to legal laypersons without explanation. You should therefore seek legal advice.

As your home is at stake, it is important that you are protected in the event of insolvency, as no government agency will vouch for the solvency of the part-purchase company. Part-purchase companies are generally companies that have only been in existence for a few years and therefore do not have a long track record documented by corresponding balance sheets.

This also applies to those operating under well-known brand names. In the vast majority of cases, the partial purchasers are not the partial purchasing companies themselves, but companies that were founded specifically for the partial purchase.

You should pay attention to this

Compare offers: Check the potential benefits and costs of a partial sale! There are sometimes considerable differences between the various providers, for example in the payment of the partial purchase price in one sum or in tranches, the amount of the usage fee and the various remunerations, fees and costs. Some part-purchase companies contribute to certain running costs of the property. Others do not. Calculate the offers as well as you can. Use our checklist, for example.

Check alternatives: Also consider other financing options. For example, some lenders offer special mortgage loans with low rates for older consumers. Some of these loans do not have to be repaid in full or at all during your lifetime. There is also, for example, the option of selling the property in return for a fixed-term or lifelong annuity. Include a property sale combined with a change of residence in the comparison scenarios.

Involve trusted persons: Involve children, relatives or close friends as soon as you are considering a partial sale. If you explain to others what you are planning, you will often realize for yourself whether you have understood the business and whether it really is the right thing for you.

Use expert knowledge: Involve independent, expert advisors in the economic evaluation of partial sale offers at an early stage. You can, for example, contact the advice centers of the consumer advice centers. The consumer advice center also has extensive Hinweise zu den Nachteilen eines Immobilien-Teilverkaufs zusammengestellt.
Lassen Sie die Vertragsentwürfe durch eine Rechtsanwältin oder einen Rechtsanwalt prüfen.

Eliminate ambiguities in good time: Clarify all open questions before you sign. You can postpone or cancel a notarization appointment. Once you have signed, it is too late to have any concerns. You are then bound by the contracts. Do not allow yourself to be pressured into anything!