Israeli real estate deals v. U.S. real estate deals – what is the difference and why is it important to know?
Many people are nervous about entering into real estate transactions in Israel for various reasons. In Israel the real estate transactions are conducted in Hebrew a language they are not familiar with. The business mentality in Israel is not what they are used to.
Foreign purchasers 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 residential real estate transactions in the U.S. as opposed to residential real estate transactions in Israel.
- Real estate agents In Israel it is customary that real estate agents charge 2% plus V.A.T. from each side. (V.A.T. means value added tax and it is 17.% of the fee). This can be negotiated and sometimes the agent will charge less. There are some real estate agencies that only charge a fee from one side.
In the U.S. the sellers pay the real estate agent’s fees. These fees are negotiable and they vary from 2% to 6% of the price of the apartment.
2. Lawyers In Israel lawyers charge from 0.5% – 2% of the price of the property depending on the amount of work that has to be done on the deal. V.A.T. should be added to this fee.
In the U.S. real estate lawyers charge a flat rate of $1000 to $1500 per deal. However, In the U.S. the real estate lawyer does not have the responsibility of doing the title search. That is done by an insurance company who then issues title insurance. In Israel the title search is done by the lawyers.
In Israel one lawyer may represent both sides to the deal. In the U.S. this is also permitted if the parties sign conflict waivers permitting one attorney to represent both sides.
3. Payment schedules In the U.S. the payment schedule goes as follows : 10% at the signing in escrow and 90% is paid at the closing (transfer of rights).
In Israel the payment schedule is varied depending on the needs of the parties. Some money is held in escrow against the fulfillment of certain duties by the seller but it usually is not 90% of the price.
In Israel mortgages can be transferred from one apartment to another. This process has an effect on the payment schedule. The reason for this is that in Israel there are special mortgages subsidized by the government with special rights attached to them such as the oleh mortgage or the mortgage for young married couples.
If the seller has such a mortgage he is allowed to transfer it to another apartment so that he will not lose these special rights and conditions.
In the U.S. mortgages are not transferred to another property. When you sell your property and buy something new then you pay off your existing mortgage and get a new one for the new house.
In the U.S. there is capital gains tax on the seller plus a transfer tax of 1%.
In Israel real estate transactions are paid in NIS. In the past second hand real estate transactions they were linked to the U.S. dollar. However, since 2006, when the Israeli NIS began to strengthen against the dollar this linkage to the U.S. dollar ended. If you are buying a new apartment from a company then the price is linked to the Israeli building index.
In the U.S. the currency is dollars and the price is not linked to anything.
6. When is the deal binding?
In Israel the deal is binding as soon as you sign the contract unless otherwise stipulated in the contract.
This is the same in the U.S.
7. Protection of Money
In Israel when purchasing an apartment under construction the purchaser’s money is protected by a bank guarantee or insurance policy. In the U.S. the money is held in escrow there is no bank guarantee.
8. Legal Fees of Construction Company
In Israel it is customary that the purchaser pay the legal fees of the construction company’s attorney when purchasing a new apartment under construction. Recent legislation limits this fee to 5,000 NIS plus VAT as opposed to 1% to 2% of the price before the change in legislation.
In the U.S. the buyers do not pay the construction company’s legal fees.
9. Government Ownership of Land
In Israel much of the land is belongs to the government and the you get a long term lease for 49 years or 99 years.
In the U.S. this is not prevalent.
Knowledge is power
Although when buying real estate in Israel you are one step closer to coming home, but it is still a foreign country . Learn the ways a customs that are prevalent in Israel when it comes to residential real estate transactions and how they influence you. This will help you prepare for the deal and overcome any difficulties you may have along the way.
Remember- “knowledge is power”.