Partial sale of your home - What owners should know

Partial property sales are heavily advertised by various providers in the media. The offer is aimed primarily at senior citizens who need liquidity and - particularly due to their age - are no longer able or willing to take out a loan. Financial freedom is promised by converting property ownership into liquidity, supposedly without losing the advantages of ownership. The scope of the sometimes complex contractual provisions is best understood through a combination of notarial advice on legal issues and independent financial advice on economic consequences.

Legal consequences of a partial sale

All partial sale models are based on the same basic structure: the customer sells a co-ownership share of up to 50% to the provider and retains the remaining co-ownership share for themselves. In return, they receive a purchase price to be paid out immediately and a lifelong right of use, usually in the form of a usufruct entered in the land register. The usufructuary right allows the customer sole use of the property to the exclusion of the partial buyer.

For this reason, it is sometimes advertised that the part seller is the sole owner in economic terms. "However, there are considerable legal differences to sole ownership," explains David Sommer, Managing Director of the Bavarian Chamber of Notaries. "The provider is remunerated for the right of use with a monthly usage fee similar to rent for the co-ownership share sold. A sole owner would not have to pay a monthly rent. Nevertheless, the customer is typically also charged the maintenance costs attributable to the share sold, which would otherwise be borne by a landlord. In detail, however, the distribution of costs can vary greatly depending on the provider. Therefore, these contractual provisions in particular should be thoroughly checked in advance."

Another difference to sole ownership is the possibility of selling the property at a later date. "As the co-ownership share remaining with the customer can hardly be sold on the real estate market, the customer can only sell with the cooperation of the provider," Sommer continues. Part-purchase providers generally make such a sale possible. However, this is associated with additional costs. There is often a processing fee for the sale, which is calculated as a percentage of the sale price (usually between 3 and 6 percent). Some providers also guarantee minimum proceeds of up to 117 percent of the original partial purchase price. If these minimum proceeds are not achieved during a sale, the customer must pay the provider the missing margin from their share of the purchase price. "As a result, the customer bears the risk of poor performance alone, while the provider participates fully in good performance," says Sommer. If the value of the property rises by less than 17% or even falls in value, the part-purchase provider receives more of the proceeds from the sale, while the customer receives less. Only if the value increases beyond the minimum proceeds will the profit be divided between the customer and the provider according to the co-ownership shares. A later repurchase of the share can also be expensive, as the customer has to pay the market value (plus any additional processing fees and at least the minimum proceeds) and thus also any increase in value in the meantime.

Finally, the consequences for the heirs should also be considered before deciding on a partial sale: The right of use of the original partial seller expires upon his or her death. The heir may therefore not use the property alone. The only option left to him is to sell the property on the terms of the partial purchaser or - if there are sufficient funds available - to buy back the co-ownership share from the partial purchaser on the aforementioned terms. As a result, some of the costs of the model are shifted to the heirs.

Also seek economic advice

With regard to the outlined legal consequences of a partial purchase agreement, the notary provides comprehensive instruction and is available to the parties involved as a competent contact partner. However, the economic consequences are also complex. The various parameters, in particular the partial sale price, usage fee, maintenance costs and subsequent revenue sharing, make the partial sale a complex contractual model, the economic benefits of which should be carefully examined in each individual case. The customer's interest in being able to use tied assets without having to leave their familiar home environment must be included in the economic consideration. Before deciding on a partial sale, economic advice should therefore also be obtained from a neutral and expert advisor.

Alternatives to partial sale

Comprehensive legal and economic advice also includes considering alternatives to a partial sale. A less legally complex alternative is the sale of the entire property subject to a lifelong right of use and possibly also a lifelong pension payment. If the property is not to be sold, a so-called real estate mortgage, also known as a reverse mortgage, can also be considered. Before deciding on a partial sale, offers from various providers should always be compared and alternative arrangements considered.

About the media association of the chambers of notaries

The media association of the chambers of notaries is an association of the professional organizations of the full-time notarial profession. Its members are the Bayerischer Notarverein e.V., the Notarkammer Baden-Württemberg, the Notarkammer Brandenburg, the Hamburgische Notarkammer, the Notarkammer Mecklenburg-Vorpommern, the Notarkammer Koblenz, the Notarkammer Pfalz, the Rheinische Notarkammer, the Notarkammer Sachsen, the Notarkammer Sachsen-Anhalt and the Notarkammer Thüringen. The media network of the chambers of notaries provides information on topics where citizens can expect help from notaries.