This article is the first of two, which will examine various aspects of buying property in Israel. The first article will present a general overview of the Israeli real estate system, the main differences between transactions in Israel and the United States and the most important considerations in such a transaction. The second article will be devoted to special issues when the property is new and will be purchased from a contractor, as well as a tax related to the purchase and sale of real estate in Israel.
In Israel, there are two types of property: private property (private land) and state property, managed by the Israel Land Administration (“Minhal”). Private property, as in the United States, belongs to the buyer with the endowment of the title. The land is registered in the land registry (Tabu) under the name of the buyer. On the other hand, the ownership of the Minhal property does not transfer to the buyer. Instead, the buyer receives a long-term rental property, which is usually 49 years with an option for an additional 49 years. Over 80% of the land in Israel is Minhal land, so the buyer should not stop buying it. However, private land is often considered preferable. Since each type of land involves a slightly different buying process, one of the first things to check is whether this property is private or Minhal.
Most buyers begin the process by receiving the services of a real estate agent in the area in which the buyer is seeking to buy. Agent fees are based on success and range from 1-2% plus VAT, depending on the size of the transaction and your qualifications for negotiating with the agent. The fee usually becomes a legally binding commitment after signing a legally binding purchase agreement. Agents must sign a potential client under a written agency agreement, and then add each property they show to the buyer to the agreement, inviting the buyer to start next to the property in order to establish the agent’s right to a commission if the buyer buys this property. Many agents try to sign you in many properties without actually showing you all of them. This can lead to a conflict between you and several agents, so it is recommended to specify only after the agent physically showed you the property.
After finding the property and negotiating with the seller the price, the actual process of buying a property begins. The process of buying land in Israel is different from what is happening in the United States. First, there is no standard escrow process, and there are no escrow companies. Secondly, there is no title insurance. Rather, lawyers play a dominant and irreplaceable role in the buying process and are responsible for protecting the interests of their clients and processing a multifaceted and bureaucratic process from beginning to end. Should each party keep its lawyer? The ethical rules of the Israeli bar are more liberal than in California, and allow one lawyer to represent both the buyer and the seller, which often happens. However, the foreign buyer is particularly vulnerable and should not rely on the seller’s lawyer, given the apparent potential for conflict of interest. The fee for a lawyer varies from 0.5 to 2% of the transaction amount plus VAT, depending on the experience of the lawyer and the size of the transaction.
After finding the property and negotiating with the seller, and sometimes before retaining the lawyer, the parties often sign an unofficial (mandatory or optional) memorandum of understanding, which sets out basic conditions such as price and date of transfer of ownership. At this stage, the buyer may request a small deposit. Most lawyers strongly warn against signing a Memorandum of Understanding, as it often leads to legal disputes, because parties that have not yet been notified by a lawyer do not understand that such a document will be binding for them, and they may not insert some critical language to him
Before signing any document, several important issues need to be considered. First, the buyer must obtain a printout from the name of the property and make sure that they are dealing with the real owners. The seller must be identified by formal identification. Secondly, taking into account fluctuations in the exchange rate of $ / Shekel and the devaluation of the dollar, purchase prices are now being discussed in Shekel. In order for the US buyer to defend himself against further depreciation of the dollar, he must either agree on an exchange rate for the floor or have sufficient shekels to buy real estate.
Thirdly, since there are no standard verification processes in Israel, it is absolutely essential that a binding agreement is not signed before the buyer asks the contractor or architect to inspect the property to make sure that the property is in proper shape. For example, small cracks in the wall, which may or may not have been deliberately understood by the seller, may indicate that parts of the property were illegally built and flooded. It is also advisable to save a licensed appraiser in order to get an estimate of the value of the property. This is especially true for foreign buyers who are less familiar with property values in Israel. The appraiser also has the right to express an opinion on whether the apartment / house was built in accordance with the building permit and local laws and zoning rules, as well as to provide information on what else can be built near the object in question.
The next step is to save a lawyer who will represent you. No transactions in Israel are carried out without lawyers. The lawyer is responsible for drafting the contract and carrying out several aspects of due diligence. The role of a lawyer is vital because there are no other documents that specify the rights and obligations of the parties, there are no escrow companies and no title insurance to verify ownership. Remember: in addition, when buying a new property directly from the contractor, there are very few provisions set forth in the law that provide protection to any party, in addition to what is discussed and written in the contract.
In preparation for the preparation of the contract, your lawyer checks the ownership of the property; check who are the owners, and if the property belongs free and free from any rights of third parties or subject to mortgage or pledge. If the land is Minhal, the lawyer checks how many years are left in the current lease, and whether the rental payment should be paid to the state. As a rule, the rental payment is paid for 49 years in advance, and then at the time of sale no monthly or annual fee is charged to the buyer. However, if the rent has ended or the lease payments have not been pre-paid in advance, the monthly or annual rent will be paid to the state.
One of the problems that the lawyer does not check, but which is the responsibility of the buyer, is the verification of the property. While the seller is required to disclose any deficiencies in the property, he cannot. In addition, defects may occur after sale. In addition, building violations, such as unauthorized expansion of a house, are common and may lead to future municipal lawsuits, demolition orders, or payments to the city. As stated above, the best way for a buyer to minimize these risks is to hire an engineer or architect who will check the property before signing a binding agreement!
Another very important issue that needs to be clarified is whether property is taxed on improvement. Preferential tax is levied by a local municipality or regional property attorney who has received additional construction rights as a result of amending local zoning laws. Thus, if the house has received the right to build an additional level, then it is considered taxable income, which is taxed at a high rate of 50% of the value of the benefit. The seller is usually responsible for paying this tax, but if the contract does not address this issue, this obligation may be imposed on the buyer, who will not be able to transfer the property to his name without the permission of this debt.
The most important part of the agreement from the point of view of the buyer is part of the contract regarding the payment schedule and the escrow agreements. The agreement must establish the portion of the purchase price that is paid to the seller at each stage of the process, from the initial signing of the agreement to the transfer of ownership and title.
The amount payable at each stage is negotiable, and it is important to understand the various material millions in the process. As a rule, the first milestone is a “warning” about the ownership of the land registration office (“taboo”) after the contact is signed, indicating that the property is being sold and cannot be resold by the seller. Another milestone involves the removal of any mortgage on the property. If there is a pledge on the ground, the seller must submit a letter of intent from his credit bank indicating the amount payable to the bank so that it issues a mortgage. In this case, a certain amount is usually paid after the mortgage loan is removed, or the buyer pays for the mortgage directly from the vendor’s creditor bank to issue the mortgage.
Another milestone occurs when the buyer provides the seller with all the documents necessary for the transfer of ownership. These documents include certificates from the tax authorities and the local municipality stating that the seller has paid all the debts and that there are no violations of the building. Another crucible document that must be provided by the seller is an irrevocable power of attorney that permits the purchaser's lawyer to sign any document and take any action necessary to transfer the property on behalf of the buyer. This power of attorney is irrevocable under the terms of Israeli law, since the rights of a third party, the buyer, depend on its validity. These documents, especially the power of attorney, are exempt by the buyer from paying all or almost the entire purchase price to the seller, because the transaction is near the end, and the only remaining action is the actual transfer of ownership to the buyer, the lawyer and the provision of ownership. [not done any more]
As for the apartments, you should specify a few additional points. First, joint buildings (condominiums), buildings containing two or more apartments, are related to relations between tenants. These relationships are covered by the creation of by-laws and the resolution of such issues as the use of common property, the right to use unused building rights, the share of each apartment in building repairs, etc. The buyer must ask the seller to provide a copy of the by-laws. Many times the buildings do not adopt secondary legislation, in which case the statutory provisions are set out in the Law on the Right to Immovable Property. Secondly, the various belonging to the object, such as parking spaces, should be part of the name of the apartment. Thirdly, in addition to arnona, each apartment pays monthly dues to the committee members. The buyer should ask a question about the amount of fees, but no one deals with a building that provides many services (pool, gym, doorman, etc.). These fees are usually quite nominal.
