Obtain a demolition order against yourself?

I don't know that, but why do you want to push it? Your country has enough space, right? Even if you don't like the neighbor, the new owner surely doesn't want to have a dispute with the neighbor right away and might not even need the 64m2. A clean separation is long overdue and will not lead to the same problems again for the children of the future owner.

Well, it's not that simple, what makes it even more difficult (which I didn't mention because it wouldn't have been relevant to the demolition) is that both plots are located directly on a river. Both plots lie completely within HQ100 and only the area already built on may be developed. If we only demolish the residential building on our side, we would have to maintain setback areas on both sides, resulting in a maximum footprint of 80m² for our part. There are another 64m² on the neighbor's side (plus the setback area of about 30m² that would no longer have to be maintained) that are already relevant, and yes, I would actually like to push it and be a pain in the ass in this case, after all, the neighbor is trying everything to prevent us from selling our property!

Understood. So there really is not enough space after all. Yes, then surely everyone would do that. The neighbor is mainly trying to prevent the development. Presumably, he does not want any shade on his land or noisy children or whatever it is he is afraid of.

I probably wouldn’t do anything in the countryside. Once the legal situation is clear, the buyer can demolish the building. Then you don’t have to worry about costs, walls that have to stay standing, or anything else. Or did you want to demolish it yourself to make more money?

One could still make money with the demolition; 500-year-old oak beams and granite floors are highly sought after by historical building material dealers.

There are no land charges

In the land register, a residential building + outbuilding is registered for our plot number with a note of an encroachment on the other plot number (indicating the encroached m²).

I am not a lawyer and also not very familiar with Bavarian building law, but I think the facts and the legal situation need to be sorted out again.

Does anyone know how much of the shed must be preserved in the case of a new building so that the encroached area does not revert to the neighbor?

A tolerated encroachment certainly does not entitle to a new building in the same place. Since you have already engaged a lawyer who, unlike us, (hopefully) knows all the facts, he should clarify all further questions.