Construction-related costs

Incidental construction costs - all costs incurred during the construction or purchase of a property in addition to the purchase price or construction costs. These typically amount to 15 to 20 percent of the purchase price and often must be financed with personal funds, as most banks do not include these items in the financing, or only partially.

What costs are included in incidental construction costs?

Incidental construction costs consist of a variety of individual items that vary depending on the type of project. When purchasing real estate, the following items are typically incurred:

• Real estate transfer tax: In Bavaria, the tax rate is 3.5 percent of the purchase price. This tax is due on every land or real estate purchase and usually represents the largest single item in the incidental construction costs.
• Notary fees: The notarization of the purchase agreement and the settlement via a notary escrow account incur costs of approximately 1.0 to 1.5 percent of the purchase price. These fees are regulated by the Court and Notary Fees Act (GNotKG) and are uniform nationwide.
• Land registry fees: The registration of the new owner and, if applicable, a land charge in the land registry costs approximately 0.5 percent of the purchase price. These fees are also regulated by the GNotKG.
• Real estate agent commission: In Bavaria, a commission of 3.57 percent (including VAT) per party is standard. Since the new legal regulations took effect in 2020, the buyer and seller typically split the commission equally-meaning the buyer pays a maximum of 3.57 percent.
• Financing costs: Commitment fees, appraisal costs for the bank’s property valuation (400-800 euros), and, if applicable, fees for the land charge registration are also included in the incidental costs.

For a new construction, additional items apply, such as costs for the building permit, the soil engineer (soil investigation: 800-2,500 euros), surveying, the structural engineer, utility connection costs for water, sewage, and electricity, as well as insurance during the construction phase (builder’s liability insurance, construction performance insurance). These items are particularly often underestimated by builders.

Incidental construction costs for new construction according to DIN 276

DIN 276 (Costs in the Construction Industry) systematically classifies ancillary construction costs into cost groups. According to DIN 276, cost group 700 (ancillary construction costs) includes: builder’s costs (700), preparation of project planning (710), architectural and engineering services (720), expert opinions and consulting (730), financing costs (740), costs during the planning and construction period (750), and miscellaneous (790). For planning costs alone-i.e., architect, structural engineer, building services engineer, and energy consultant-builders should budget 10 to 15 percent of the construction costs. An architect working under the HOAI typically receives a fee of 35,000 to 60,000 euros for a single-family home with 400,000 euros in construction costs, depending on the service phases commissioned.

Why are ancillary construction costs so often underestimated?

In practice, we regularly see that buyers and builders set ancillary construction costs too low in their financial planning or simply forget individual items. This is partly because many types of costs only become apparent as the process unfolds-such as the costs for a soil survey or site development. On the other hand, most financial institutions do not finance ancillary construction costs, meaning they must be covered entirely by equity. Those calculating with limited equity can quickly find themselves in financial trouble here. We therefore recommend budgeting at least 15 percent of the purchase price for ancillary costs in your financial planning and setting aside an additional 5 percent buffer for unforeseen expenses.

Practical Tip for Nuremberg and Franconia

In Bavaria, the real estate transfer tax of 3.5 percent is at the lower end of the national scale-this is a clear locational advantage for buyers in the Nuremberg metropolitan region compared to states like North Rhine-Westphalia (6.5%) or Brandenburg (6.5%). Nevertheless, at current price levels in sought-after neighborhoods such as Erlenstegen, Mögeldorf, or St. Johannis, incidental costs can quickly add up to five-figure sums. For a condominium priced at 400,000 euros, real estate transfer tax (14,000 euros), notary fees (4,000-6,000 euros), and land registry fees (2,000 euros) alone amount to approximately 20,000 to 22,000 euros-excluding the real estate agent’s commission. Upon request, we provide our clients with a customized breakdown of ancillary costs so that the total costs are transparent from the start and the financing is on a solid footing.

Frequently Asked Questions

Can I deduct ancillary construction costs from my taxes?

For owner-occupied residential property, construction-related costs are generally not tax-deductible. The situation is different for rental properties: Here, notary and land registry fees, as well as real estate transfer tax, can be allocated to the building portion as incidental acquisition costs and thus increase the depreciation base (AfA). Real estate agent commissions for rented properties can also be claimed as income-related expenses or incidental acquisition costs. We recommend that investors clarify the tax treatment with a tax advisor early on, as the allocation of incidental costs to the building or land portion can have significant tax implications. An expert purchase price allocation optimizes the depreciable portion.

Are incidental construction costs negotiable?

Some items, such as real estate transfer tax and land registry fees, are set by law and non-negotiable. The broker’s commission, on the other hand, can be negotiated within the framework of legal requirements-the law stipulates that the buyer and seller each bear a maximum of half of the agreed-upon commission. There is also some leeway with notary fees, for example by waiving a notary escrow account (saving approx. 0.25-0.5% of the purchase price) or by postponing the creation of the mortgage to a later date. We are happy to advise our clients on potential savings regarding incidental construction costs and on legal structuring options.

When must ancillary construction costs be paid?

The individual items are due at different times. The real estate transfer tax is levied by the tax office via a tax assessment notice after notarization-only after payment does the tax office issue the clearance certificate required for the transfer of ownership in the land register. Notary and land registry fees are invoiced shortly after notarization. For new construction, ancillary construction costs (architect’s fees, appraisal costs, insurance) are spread out over the entire construction period. We recommend planning your cash flow so that all items can be paid on time without straining your construction financing.

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