Real estate sale: What does the financial plan have to do with it?

Anyone selling a condominium should know their financial plan (budget) for the property very well. Condominium owners may sometimes have to explain to potential buyers not only why the location and features of the apartment justify the purchase price. Ongoing costs are also generally of interest. Therefore, you should prepare for questions about the financial plan. It defines the amount of advance payments to be made to cover the shared expenses for a homeowners association.

The business plan for a property shows income and expenses

Every condominium complex has its income and expenses from ongoing costs, which are recorded in a financial plan. The income consists of the so-called Housing allowance, which is sometimes also called house money. These are usually monthly payments to cover the incurred community costs.

At a Real Estate Sales the buyer assumes the seller's obligations to make these payments. How high they are results from the economic plan, also called the overall economic plan. This is a type of financial plan that must be prepared annually. This is a duty of the property management. The basis of this duty is Section 28 of the Condominium Act. A different period of validity is possible.

Every economic plan contains an individual economic plan

The detailed management of the condominium property is in Condominium law regulated (see §§ 20 to 29 WEG). These include Preparation of the business plan as well as the annual service charge statement for the past financial year. Expenses for a residential complex with condominium apartments arise, for example, from ongoing costs for energy, street cleaning, and property management services. The economic plan compares them with the income and should demonstrate as clearly as possible with the balance sheet that the residential complex is managed economically.

In the calculation of the amount of future housing allowance, the business plan also incorporates estimates of anticipated cost increases in the coming calendar year. The business plan also always includes an individual business plan, which might likewise be addressed by a prospective buyer in the event of a real estate sale. The individual business plan, which the condominium owner receives for their apartment, calculates the amount of the housing allowance for the respective condominium. For this purpose, the so-called Cost allocation key Important.

In this context, the saving of Replacement reserve made on a monthly basis. Every owner of a condominium in a homeowners' association must fulfill their payment obligations and pays a monthly share towards the Replacement reserve The amount is determined by the financial plan, which was approved by a general meeting of property owners.

What is the period of validity of a business plan?

A financial year does not necessarily have to apply only to the following year. A homeowners' association (WEG) may resolve that its business plan for the coming year shall remain in effect until a new one has been adopted – without further time limitation. This saves the annual preparation of a new financial plan and a subsequent vote in the owners' meeting. The property management and the co-owners should ensure that the financial requirement for the maintenance of the Common property is sufficient and no funding gaps arise.

Cost allocation: yet another issue in real estate sales

The cost allocation key results from the Community bylaws of the association of property owners. The community rules define the rules for living together for the condominium owners in the residential complex. For example, they lay down Right of special use firmly, by determining who is allowed to use the garden areas belonging to the complex. Or it regulates the topic of „keeping pets in the apartments.“ As the name suggests, the cost allocation key regulates the distribution of incurred common expenses. These costs are not necessarily divided equally among all owners in a residential complex. Shares can vary, for example, due to different apartment sizes, co-ownership shares, or consumption figures.

As a potential seller in a real estate transaction, one should therefore be prepared for the prospective buyer to ask questions about the economic and individual financial plans, as well as relevant individual topics such as the distribution key. And even more questions regarding the financial plan could arise.

The cost allocation key results from the Community bylaws of the association of property owners. The community rules define the rules for living together for the condominium owners in the residential complex. For example, they lay down Right of special use firmly, by determining who is allowed to use the garden areas belonging to the complex. Or it regulates the topic of „keeping pets in the apartments.“ As the name suggests, the cost allocation key regulates the distribution of incurred common expenses. These costs are not necessarily divided equally among all owners in a residential complex. Shares can vary, for example, due to different apartment sizes, co-ownership shares, or consumption figures.

As a potential seller in a real estate transaction, one should therefore be prepared for the prospective buyer to ask questions about the economic and individual financial plans, as well as relevant individual topics such as the distribution key. And even more questions regarding the financial plan could arise.

Various aspects of the economic plan can become a topic

During a conversation with a potential buyer, very different aspects of the business plan can become a topic of discussion. For example, one potential buyer might be mainly interested in the resulting Energy costs interest, while the other places the main focus on Costs for property management services lays down. Another topic could be the amount of a further cost that is also counted among the costs Maintenance reserve be. It serves to, possible renovations to be able to finance. A relatively high maintenance reserve can be an indication for potential buyers that an increase in renovation work can be expected in the future. Anyone who wants to market a condominium optimally should prepare for a wide variety of potential questions from prospective buyers during a property sale and consider in advance how to respond appropriately based on the facts.

Honesty is important. Of course, you can highlight a property's existing advantages when selling real estate. But you must not do not conceal potential defects and ultimately ensure that the prospective buyer can make a confident purchasing decision. To achieve this, documents such as the business plan should be available to present during every conversation with a prospective buyer.

The economic levy and the special levy

If the planned costs in the business plan are not sufficient because new measures arise, a Special assessment can be decided by condominium owners in the course of a financial period. Thus, special assessments primarily serve to cover extraordinary or unforeseen financing gaps.

To conclude: a tip for real estate buyers!

The topic of the „business plan“ was presented primarily for real estate sellers. However, it naturally plays a role not only when selling real estate, but also when buying it. As a potential buyer, you should know precisely what recurring payment obligations you will face before making a purchasing decision. To get a good overview of the property's management, it is advisable to compare the economic plan with the annual financial statement. This protects against unpleasant surprises and ensures that you make a good decision.