Buying from Plans – 8 Essential Questions to Ask Your Contractor

Buying from plans means buying a new home directly from a construction company. This can certainly push your anxiety level up. If you know what questions to ask, you can anticipate any issues and solve them before your minor headache turns into a major migraine.

Question 1: Are these the final plans?

The answer is likely to be no, unless these are the plans attached to the contract that you sign. Along the way, plans can change and the plans you see when you are deciding whether or not to buy may be changed right up until the contract is signed by you and the contractor. 

If you sign the contract before the building permit has been issued, the plans may change later on because the local municipality may have requirements that force the contractor to change the plans in order to get the building permit. Commonly, the contract allows the purchaser to cancel the contract should the final plans be fundamentally different after the building permit is issued. 

Most pre-construction contracts include clauses allowing the construction company  to make changes in other places in the project. The law allows the construction company to make small deviations from the plans and quantities of items in the apartment.

Question 2: Can I change the contract in any way?

The answer is almost certainly yes. Although these contracts are standard for the entire project, there is often room to negotiate particular clauses in the contract. Your real estate attorney can help you negotiate the best conditions for your situation.

Make sure that the following clauses are acceptable to you: the price, the payment schedule, the date by which the construction company undertakes to deliver the apartment and the reasons for lateness, the manner in which your money will be protected, the warranty of the company for defects, registration of rights, the specifications of the apartment, and the plans.

Question 3: Is my money protected if you get into financial difficulties?

No one likes to think about this type of situation but these things do happen occasionally.  The most common protection is a bank guarantee where the bank guarantees your investment in the building project until you receive the keys to your apartment or house. Other options include an insurance policy taken out by the contractor, and a payment schedule which allows for payments to be made only when pre-agreed stages in the construction have been reached.

Usually projects are given financial backing by a bank. The money you pay is deposited in an escrow account and you are given a bank guarantee or insurance policy which protects your money. The bank guarantee or insurance policy should stay in effect until you take possession of the apartment and your rights are registered.

Question 4: What happens if there are defects in construction?

The construction company is legally obligated to deliver your apartment or house without any shortcomings. If anything is flawed, or doesn’t match the specifications in the contract, the contractor is responsible for repairing the problem. You will have an opportunity to check the apartment before you take possession. Together with a company representative you should prepare a protocol consisting of a list of necessary repairs. You are also covered if faults are discovered at a later date which could not have been seen at the time the protocol was drawn up. A typical example would be damp, which is not obvious until after the winter rain. Additionally, Israeli real estate law mandates warranty periods for various aspects of the construction.

If you do find  defects in the apartment after you have received it you must notify the construction company within a reasonable period of time and give them a chance to repair the defect.  Should the construction company fail to do so, you have legal recourse.

Question 5: When does the apartment get registered in my name?

In almost every case, the building is finished before the property title can be registered. The contractor’s attorney must register the project, the apartment building or house, and the specific apartment in the land registry. This can only be done after the appropriate national agencies have completed their responsibilities (mapping the land, issuing court orders, filing architectural plans etc) and the whole process generally takes years. For this reason, owner rights are temporarily registered until the permanent registration is approved.  This temporary registration takes place in the company’s books or with the company’s attorney and in the Israeli Land Authority if the land is government-owned. 

It is important to understand that most of the land in Israel (about 90%) is owned by the government and administered by a government agency called the Israeli Land Authority (Minhal Mikarkai Yisrael).  You are given a  a long term lease for 49 or 99 years. The “rent” is paid in advance for the whole 49  or 99  years.  At the end of the lease period the lease is renewed by the government, albeit for a fee.  This does not prevent you from buying, selling or mortgaging the apartment.

Question 6: Is it possible to put a cap on the price of the property?

Unfortunately this is almost never possible.  All prices of apartments as they appear in construction contracts are linked to the Israeli Consumer Price Index or the Building Index. 

During periods when the dollar is devaluated, construction companies usually choose to link the price either to the Building Index or to the Consumer Price Index. This means that if the index goes up, the price of the unpaid part of the apartment will go up proportionately.

There are ways to minimize this by planning the payment schedule carefully.  For example, the Building Index is known to rise more in the summer than in the winter.  You can, therefore, often save money by making payments before the summer starts.

Question 7: Does the construction company have to deliver the apartment on time?

Every contract has a date by which the apartment must be given over to the purchaser.  However, all preconstruction contracts allow the construction company to delay completion of the apartment for various reasons such as force major, war,  many days of bad weather, lack of workers, lack of materials, etc.  Most contracts allow the construction company to be late by 3 months for no reason at all, and that is in addition to lateness for any of the above reasons.  If, after all the above, the construction company is still late in giving over the apartment then compensation in the amount of a monthly rent is set.  It is important to make sure that this amount is fair.

Question 8: Can I make changes in the apartment?

Although most companies would prefer to just build the original apartment, they do allow you make changes.  However, very often these changes will incur added expenses.  In addition to changes you can also upgrade the materials used, such as ceramic tiles, kitchen cabinets etc.  It is important to note whether the construction company (in the contract) exempts itself from responsibility for these changes or additional work. 

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