Sale to neighbors & pre-emption rights
Introduction: Sales in the immediate environment
People who want to sell their property often consider interested parties from the immediate vicinity – such as neighbors or acquaintances in the neighborhood. Selling to someone from the neighborhood can seem tempting, as there is already interest and trust. The thought often sounds logical: “Why hire an estate agent if my neighbor wants to buy right away?”
However, you should carefully consider whether you are missing out on market opportunities. Even if the neighbor makes a fair offer, there is a risk that you will sell below value because you have not checked the real market value and have severely limited the group of buyers. In this guide, we shed light on the advantages and challenges of a neighborhood sale and explain everything you need to know about pre-emption rights, e.g. who is allowed to exercise such a right and what needs to be considered in a neighborhood protection area. This enables private property sellers to make informed decisions and avoid pitfalls.
(Tip: You can find more information specifically on selling directly to neighbors in our guide article “Selling to neighbors without an estate agent – a good deal?”).
Advantages and challenges of selling to neighbors
Advantages: Selling to trusted neighbors or acquaintances can offer several advantages. On the one hand, there is usually already trust – you know each other, which can make negotiations easier. Secondly, the sale can often be arranged more quickly as the buyer is nearby and viewing appointments are straightforward.
There is often no need for expensive marketing; a simple conversation or a “For Sale” sign can be enough to arouse interest. In addition, some owners like the idea of putting their property in good hands in the neighborhood – to the nice family next door, for example. Ideally, the neighbor will even be willing to pay a reasonable price because they are keen to acquire the property (e.g. to use it themselves or make it available to family members).
Challenges: Despite these advantages, there are significant challenges with neighborhood sales. Probably the biggest disadvantage is that you are limited to a very small group of buyers. You may miss out on better-paying potential buyers from the wider market. Especially without professional marketing, there is no competition from buyers – and less competition weakens your negotiating position when it comes to pricing.
Another aspect is emotional pressure: perhaps you have a friendship with your neighbor, or their personal history (e.g. “I want my grandson to be able to live next door”) makes it difficult for you to say no. This can lead to you accepting a lower price out of consideration for the relationship or agreeing prematurely without waiting for other offers. If the sale doesn’t go through after all, the relationship with your neighbor may suffer. It’s also important to remember that all formal steps are necessary when selling between neighbors – from the purchase agreement and financing to the notary appointment.
Without an estate agent, there is often a lack of professional support, which can lead to mistakes. After all, an estate agent costs commission, but their service often results in higher sales proceeds, which more than compensate for the costs. The bottom line is that sellers should carefully consider whether they really want to sell directly to their neighbor or approach a larger group of buyers in order to achieve the best possible price.
Are you unsure whether you are getting the best price with your neighbor’s offer? Have the value of your property professionally assessed! Request a consultation now and discuss it with our experts without obligation.
What is a right of first refusal – and who can exercise it?
When selling real estate, third parties may have a right of first refusal. But what exactly does this mean? A right of first ref usal grants a specific person or institution the right to enter into a purchase that has already been negotiated. Specifically, if the owner sells their property to someone else, the person with the right of first refusal can enter into the purchase contract on
Who can have a right of first refusal? Pre-emption rights can either be regulated by law or contractually agreed. Here is an overview of the most important cases:
- Tenants of an apartment: If rental apartments have been converted into condominiums, existing tenants have a statutory right of first refusal for their apartment as soon as it is sold for the first time (Section 577 BGB). The tenant can therefore take over the purchase on the same terms – unless the apartment is sold to a relative of the landlord. This right protects tenants from being displaced and ensures that they can become owners themselves if they so wish.
- Municipalities (cities/municipalities): According to the German Building Code, municipalities have a right of first refusal on properties in certain cases, especially if there is a public interest involved. One important example is sales in social conservation areas (also known as milieu protection areas ). If a building is sold in a conservation area, the district has the right to enter into the contract instead of the buyer if the public interest justifies this. More on this later. Local authorities may also have a right of first refusal in other cases – for example in the case of important areas for urban development or if land is designated as green space in development plans. This serves to implement urban development goals or, for example, to protect tenants from luxury renovations.
- Co-owners or neighbors by agreement: In some situations, a right of first refusal is contractually agreed. For example, it can be agreed between heirs or within the family that in the event of a sale, one of them has first right of refusal. A neighbor can also obtain a contractual right of first refusal for an adjacent property entered in the land register – however, this is rare and must be expressly agreed. Without such an entry, a normal neighbor has no automatic pre-emptive right to your property.
Important: A right of first refusal does not mean that the entitled party can prevent the sale, but that they can buy on the same conditions. It also only applies if a purchase agreement has actually been concluded with a third party. The seller is therefore not obliged to make an offer to the beneficiary on his own initiative – but he must notify the conclusion of a contract so that the beneficiary can exercise his right. As a seller, you should therefore clarify at an early stage whether someone has a right of first refusal in order to avoid surprises later on.
Milieu protection: Special features of pre-emption rights by the city
A special case of the statutory right of first refusal is that in milieu protection areas. Milieu protection areas – officially social conservation areas in accordance with Section 172 BauGB – are districts in which the composition of the residential population is to be preserved (protection against displacement). In cities such as Berlin or Munich, the districts/districts have a right of first refusal in favor of the general public in order to influence property sales. But how does this work and what does it mean for sellers?
When the local authority intervenes: If an entire residential property in a milieu protection area is sold (e.g. an apartment building with several apartments), the district can take over the purchase contract. In practice, a municipal housing association or cooperative, for example, would then step in as buyer instead of the original buyer. For you as the seller, nothing changes in the purchase price – the price from the purchase contract remains valid, only the buyer changes. This can even be advantageous for the tenants of the building, as municipal housing companies are subject to certain requirements (tenant protection, housing supply law, etc.). Often, however, the city does not even try to buy the property itself, but instead tries to persuade the intended buyer to make certain concessions.
Avoidance agreement: In many cases, the district offers the buyer the opportunity to conclude a so-called avoidance agreement. This means that the buyer voluntarily undertakes to comply with certain milieu protection requirements – for example, no luxury renovations, no conversion into vacation apartments, limitation of modernization levies, etc. As soon as the buyer signs this agreement, the city waives its right of first refusal. In this way, the set goal (protection of tenants from displacement) is achieved without the city having to buy itself. For you as the seller, this means that the originally selected buyer remains in the game, but must accept certain rules.
Deadlines and current legal situation: The exercise of the right of first refusal by the local authority is subject to deadlines. In neighborhood protection areas, the review period is currently three months from submission of the purchase contract to the district. During this time, the authority decides whether or not to exercise the right. However, the application of this instrument has been severely restricted since a ruling by the Federal Administrative Court on 09.11.2021. The district may only buy if the sale actually contradicts the objectives of the conservation statutes – mere suspicions that a buyer could carry out luxury modernizations in the future are not sufficient.
In practice, therefore, hardly any use has been made of the right of first refusal in cities such as Berlin in recent years. Instead, there has been an increased focus on avoidance agreements with buyers. Nevertheless, sellers in neighborhood protection areas must wait for the review process: a sale is always subject to the proviso that the district issues a so-called negative certificate within the deadline (i.e. confirms that no pre-emptive right is being exercised). Only then can the sale be finally notarized and executed in the land register.
What should sellers do? If your property is located in a conservation area, find out about the current requirements from the local authority at an early stage. Make sure that your buyer is aware of the possibility of an avoidance agreement and is prepared to enter into it – this will increase the likelihood of the sale going through smoothly. Despite the currently limited application of the right of first refusal, you should factor the three-month period into your timetable.
Expiry and deadlines for pre-emption rights
If a right of first refusal exists, the sale process is somewhat different than usual. Here is a typical procedure that applies to statutory pre-emption rights (e.g. of tenants or local authorities):
- Conclusion of purchase contract subject to reservation: First, the seller concludes a purchase contract with the buyer at the notary as normal. However, a reservation is included in the contract that any parties entitled to pre-emption can take over the contract. This means that the contract becomes effective unless a third party exercises their right of first refusal.
- Notification of the beneficiary: Immediately after signing the contract, the beneficiary must be officially informed. In the case of tenants, this is usually done by the notary, who sends the tenant the complete draft purchase agreement. In the case of a municipal right of first refusal, the notary applies for a negative certificate from the district authority and sends the purchase contract to the authority. This step is important to ensure that the deadline begins to run.
- Waiting period – decision on the right of first refusal: The statutory period in which the entitled party must decide now begins. Tenants have two months from receipt of the notification to exercise their right of first refusal (Section 577 BGB). As mentioned above, local authorities have up to three months in milieu protection areas. Contractually agreed pre-emption rights are based on the deadlines specified in the contract, often also around two months. During this time, the original buyer and seller have to wait and see.
- Exercise or waiver: The person entitled to pre-emption can now declare that they are exercising their pre-emption right. If he does so in due time, he takes the place of the original buyer – the purchase contract then applies between the seller and the entitled party under the identical conditions. If the entitled party does not accept within the deadline or expressly renounces in writing, the right of first refusal for this sale expires. The originally intended buyer can then purchase the property.
- Completion and settlement: If the entitled party waives or the deadline expires, the local authority, for example, issues a negative certificate (confirmation that no pre-emption has taken place). The notary can then carry out the transfer of ownership (registration of conveyance) for the original buyer. If, on the other hand, the entitled party exercises its right, the notary must reverse the purchase contract with the first buyer and instead arrange for the entry in the land register on behalf of the entitled party. The sale price is then paid by the entitled party. As the seller, you will therefore receive the agreed purchase price in any case – the only question is from whom.
Please note: During the waiting period, you as the seller are bound by the purchase contract. You cannot simply choose another buyer or renegotiate the price. The original buyer is also uncertain whether they will actually get the property.
This situation requires good communication: inform the buyer openly about existing pre-emption rights so that they understand the delay. It may be possible to contractually agree what happens if the right of first refusal is exercised (e.g. reimbursement of costs already incurred by the buyer). As a rule, however, these procedures run smoothly – either the entitled party waives the right or buys the property himself. It is important to strictly adhere to the deadlines and provide all the necessary documents quickly to avoid delays.
Legal and emotional aspects of neighborly sales
In addition to the factual aspects, a sale within the neighborhood also touches on some legal and emotional aspects that private sellers should consider.
Legal aspects: If you are selling to someone in the immediate vicinity, you should check whether special rules apply. A typical example is the condominium owners’ association (WEG) for condominiums. In this case, the declaration of division may stipulate that the other owners must consent to the sale – the so-called restriction on sale pursuant to Section 12 WEG. This regulation provides the community of owners with a means of preventing unwanted new co-owners.
For you as the seller, this means that although you alone own the apartment, you may need the consent of the property management or the co-owners for the sale. If they refuse their consent (which can only be given for good cause and usually by a majority vote), the sale cannot be completed effectively. You should therefore check your condominium’s community rules in advance to see whether there is such a reservation of consent – and seek legal advice if in doubt. In practice, a veto is rare and must be well justified (e.g. the buyer would violate the house rules or significantly disturb the peace in the building).
Nevertheless, talk to the neighbors in the condominium association about your sales plan at an early stage and perhaps introduce the potential buyer in person. Open communication can reduce reservations and secure approval.
Another legal point: Even if you know the buyer personally, everything should be set out in writing and notarized. Don’t do without a detailed written purchase agreement just because you trust each other – verbal agreements have no legal effect in real estate. Clarify the financing, timetable, property boundaries etc. just as thoroughly as you would with a third-party buyer. If you are unsure, estate agents or notaries will be happy to help you avoid disputes.
Emotional aspects: Selling to neighbors can be emotionally challenging. You are in constant contact – you may meet every day – and still have to discuss hard facts: price, move-out date, any defects in the house. This harbors potential for conflict.
A common difficulty: Friendly price or market price? The neighbor may expect a discount out of friendship, while you naturally want the best price. Here it helps to communicate clearly from the outset that the property is being sold at market value. A professional valuation (e.g. by an estate agent or surveyor) can serve as an objective basis and defuse personal discussions.
Both sides should also respect when negotiations fail – and not take it personally. As a seller, you must have the right to say no if the offer is not right, without a garden fence war breaking out immediately.
The idea of someone familiar moving into your current home is also emotional. This can be reassuring (“I know it will be in good hands”) or disconcerting (“Will I have to watch them change everything?”). Think about how this makes you feel. Sometimes it’s easier to make a clean break and not constantly worry about what the new owner will do with the house.
On the other hand, a neighbor as a buyer can also be positive – perhaps special mementos or customary rights can be taken over (e.g. the old apple tree that you are so proud of can stay). It is important that you separate yourself emotionally as soon as the sale is sealed: the property then belongs to the buyer, whether neighbor or not, and they can dispose of it freely.
Our advice: Maintain a professional attitude during the process, even if you know the buyer well. If necessary, consult a neutral third party – such as an estate agent or lawyer – who will moderate the process and ensure that objective criteria are adhered to. This will prevent personal feelings from dominating the decision or causing bad blood in the neighborhood.
Conclusion: What sellers should look out for
- Check the market value: Have the value of your property determined neutrally before you accept a neighbor’s offer. This way, you will know whether the price offered is reasonable or whether you could achieve more through open marketing.
- Use the advantages, minimize the disadvantages: Selling to a neighbor can be quick and uncomplicated, but it does involve risks such as a price that is too low or tensions in the relationship. Be aware of these advantages and disadvantages. Establish rules from the outset (e.g. no “friendly price” below market value) to avoid misunderstandings.
- Check legal pitfalls: Find out at an early stage whether third parties have pre-emptive rights (tenants, the city, family agreements, etc.) or whether you need the consent of co-owners. Adhere to the prescribed deadlines and inform all parties involved in good time so that the sale is not unexpectedly blocked.
- Consider professional support: Even if you are selling to someone close to you, the support of a real estate professional can be useful. An estate agent not only takes care of the valuation, but also moderates the negotiations and handles the formalities – an advantage, especially in emotional situations. Ultimately, the sale should go smoothly and you want to achieve a fair price. Experience shows that owners often reach a more relaxed and successful conclusion with professional support.
- Communication is key: Whether with neighbors, tenants or authorities – inform and communicate openly. Clarify expectations in advance and record agreements in writing. This will create trust and avoid conflicts.
Finally, don’t allow yourself to be rushed, but make a well-considered decision. A neighborhood sale can be a win-win situation, but it requires a sure instinct. If you know the market value, pre-emption rights and the right steps to take, you will be well prepared. If you are unsure, it is better to get expert support.
Do you want to play it safe when selling your property? Whether valuation, marketing or legal issues – we are at your side. Request advice now and arrange a non-binding consultation with our real estate experts. We will be happy to help you find the best way to sell your property – whether in the neighborhood or on the open market.
FAQ: Sale to neighbors & pre-emption rights
Yes, a direct sale to a neighbor is generally possible. However, you should not do without a professional valuation to ensure that the price offered corresponds to the market value. Without an estate agent, legal or emotional conflicts can also arise – neutral mediation by a professional helps to avoid these.
A right of first refusal allows certain persons (e.g. tenants or the local authority) to enter into a purchase agreement that has already been negotiated and to buy on the same terms. It only applies if there is a valid purchase agreement with a third party. The entitled party then has a certain period of time to exercise their right.
No. A neighbor only has a right of first refusal if it has been contractually agreed and entered in the land register. Without such an entry, a neighbor has no special right to preferential treatment when selling.
In a milieu protection area, the city or district may have a right of first refusal in order to preserve the social structure of the neighborhood. Whether it is exercised depends on the specific conditions of sale. In most cases, this can be prevented by an avoidance agreement with the buyer.
Different deadlines apply depending on the case:
- Tenants have two months (§ 577 BGB)
- Municipalities in milieu protection areas have three months (§ 28 BauGB)
- In the case of contractually agreed pre-emption rights, the agreed period applies, usually also 2-3 months.
Yes, even a sale to friends or neighbors must be notarized in Germany. A verbal contract or a handwritten note is not legally valid for real estate transactions.
If the declaration of division contains a restriction on sale in accordance with Section 12 WEG, the WEG management or owners’ association can refuse its consent – but only for good cause. Check your documents in good time or seek legal advice.
This is an agreement between the buyer and the local authority in which the buyer undertakes to comply with certain conditions (e.g. no luxury renovations). This means that the local authority waives its right of first refusal and the original buyer can conclude the contract.
He then takes the place of the original buyer. The seller receives the same purchase price, but from a different buyer. The original buyer receives nothing, but may be reimbursed for any costs incurred if this has been contractually agreed.
Seek advice from a real estate expert or notary at an early stage. Professional support helps to avoid legal risks and prevent delays in the sales process
Table of contents
Click on a section to jump directly to it.
- Advantages and challenges of selling to neighbors
- What is a right of first refusal – and who can exercise it?
- Milieu protection: Special features of pre-emption rights by the city
- Expiry and deadlines for pre-emption rights
- Legal and emotional aspects of neighborly sales
- Conclusion: What sellers should look out for
- FAQ: Sale to neighbors & pre-emption rights
