Comparison between Israeli Residential Real Estate Transactions and U.S. Residential Real Estate Transactions

Many people are nervous about entering into Real Estate transactions in Israel for many reasons. In Israel the real estate transactions are conducted in Hebrew a language they are not completely familiar with. They are not used to Israeli business mentality. Purchasers who are not native Israelis feel that the process is different in Israel than in their native countries, thereby exposing them to more risk. Below you will find a list of practical differences between U.S. real estate transactions and Israeli real estate transactions.

  ISRAEL U.S.A.
Real Estate Agents’ Fees 2% of the price from both buyers and sellers, plus V.A.T. Sellers pay fees. Negotiable, but usually between 2% – 6% of the price.
Lawyers’ Fees Fees vary between 0.5% – 2% of apartment price, plus V.A.T. This depends on whether or not the lawyer has to do additional work such as keep escrow accounts or procure the mortgage for the client. A flat rate of $1000 – $1500 per deal.
Title Search Completed by the lawyer. Title insurance exists but is not very prevalent. The buyer’s lawyer registers a notation in the land registry after the first payment is made to prevent sale of the property to a third party. This notation gives the purchaser precedence against any future impediments that might be registered on the property after the signing of the contract and before registration of title in Buyer’s name. Completed by the insurance company which issues title insurance.
One Lawyer for Both Parties Permitted. However, the lawyer may not represent one party to the contract against the other in case of a law suit resulting from the deal. If the lawyer has a personal connection with one of the parties (for example is a relative) or has a personal stake in the transaction he may not represent both sides to the transaction. Permitted if the parties sign conflict waivers permitting one attorney to represent both sides.
Payment Schedules The payment schedule varies depending on the needs of the parties. Some money is held in escrow against fulfillment of certain duties by the seller, but it is usually never 90% of the price. 10% at the signing, in escrow. 90% at the closing (transfer of rights).
Mortgages Mortgages can be transferred from one apartment to another. The reason for this is that some mortgages have special rights attached (such as the oleh mortgage). The seller can transfer such a mortgage to his new apartment so as not to lose these rights. This whole process also affects the payment schedule and is subject to the rules of the lending institution at the time of the new transaction. Mortgages are not transferrable to another apartment. When you sell a property, you pay off the mortgage on the property and then have to get a new one any new property you buy.
Taxes The purchaser pays Purchase Tax and the seller pays Capital Gains Tax. The Purchase Tax is calculated according to a sliding scale that is updated periodically. Olim and disabled individuals have a partial exemption from the tax. Buyer’s pay a higher purchase tax for on a second apartment. Purchase tax for land, commercial property or vacation units is 5% of the price. Capital Gains Tax is paid by the seller, plus a transfer tax of 1%.
Linking of Price In the past when the U.S.  dollar was strong the prices of second hand apartments were usually linked to the U.S. dollar. Now due to the fall of the U.S. dollar against the Shekel the prices of second hand apartments are written in shekels and usually not linked to anything (except occasionally to the Israeli Consumer Price Index). The prices of new apartments under construction are usually linked to the Building Index, but are sometimes linked to the Consumer Price Index. Prices are not linked.
When Is The Deal Binding? Upon signature of both parties on the contract. Upon signature of both parties.
Protection of Monies In contracts for new apartments still under construction, the money is protected by a bank guarantee or insurance policy. In a second hand sale a notation to the benefit of the Buyer is registered with the land registry or a pledge to the benefit of the Buyer is registered with the Registrar of Pledges. In contracts for new apartments still under construction, the money is held in escrow.
Who Pays the Construction Company’s Legal Fees? Usually the buyer. Sometimes it is incorporated into the price. The construction company.
Long term lease Much of the land is held under a long term lease. The buyer gets a long term lease for 49 or 99 years from the government. Due to a change in the law in 2010 this is beginning to change and many long term leaseholders will get direct ownership in the land. This is not prevalent.