Negotiating a Fair Contract– How to Navigate the Pre-Contract Stage of Your Real Estate Transaction

So you’re in the market for a new home. What do you do next? What are your obligations when you use a real estate agent? Once you find what you’re looking for, how do you make an offer on the house? Is it possible to bind the seller to the deal at this stage? If you change your mind before the signing of the contract can you extricate yourself from the deal? In short, how do you get the result you want?

Many potential buyers prefer to use the services of a real estate agent who is familiar with the area in which the property search is taking place. Real estate agents will ask you to sign a form in order to do business with you. This form is a legally-binding contract which stipulates the terms and conditions of your business relationship and the fees you will owe the real estate agent. Make sure you understand the conditions written on the form and that you have a copy to keep with you. It is very important to write down which properties the agent showed you, especially if you are viewing properties with other agents as well. If you see that an agent is taking you to view a property that you have already seen with another agent, then notify him immediately and write it on the form.

When you find a property that you want to purchase, the next step is to make an offer. You can do this through your real estate agent. Any offers are made verbally and money does not change hands at this time.

In Israel, any document that you sign can be legally binding. Often, real estate agents will suggest that the potential parties sign a pre-contract “zichron devarim”. Be aware that this is a legally binding document. Most real estate lawyers advise against signing such a document because at this stage you have not had an opportunity to really investigate the legal particulars of the deal.

A good real estate agent will help you negotiate the price and the date of possession. The payment schedule (which is usually not 10% on signing and 90% on completion, as it is in other countries) is negotiated by the lawyers when they negotiate the terms of the contract.

Other questions that must be addressed and which may affect the terms of the contract include: Is the currency of the contract in shekels or dollars? Is the house in good condition? Is it built to code? Is the property registered in the seller’s name? Is the property encumbered by debts?

After the parties have come to an agreement about the terms of the transaction, you should ask to see the registration of the property. Your attorney will check to see if there are any problems regarding the registration which would preclude doing the deal or influence the deal in any way.

If all is well, the next step is to hire an engineer to check the property and answer some of the above questions. If you are planning to make any structural or design changes to the property you may also want to consult with an architect.

After checking the property registration and receiving reports from your engineer or architect, the lawyers will begin contract negotiations.

Very often deals fall through after the purchaser has invested time and money in checking out the property. This is obviously very upsetting and disappointing for the purchaser, but if the contract has not been signed there is very little that can be done.

In order to avoid this type of situation it is best to make sure that there is a real meeting of the minds between the parties before money is spent on engineers, architects and lawyers. It is important to say to the seller, “I am going to spend a lot of money checking this deal out. Are you completely on board? Have you settled any issues you might have? “

Recently, I worked on a deal that went to the lawyers before the sellers were ready. The sellers had major tax issues that they needed to settle, but the parties were rushed to move ahead. As a result, the purchaser hired an engineer to check the property and a lawyer who began working on the contract. In the end, the sellers pulled out due to their tax issues. The purchaser was very hurt, angry and disappointed, not to mention out of pocket. The whole experience was so upsetting to him that he decided not to purchase any property in Israel at all.

Sometimes, due to unforeseen circumstances, such situations are unavoidable. Sometimes, expecting the unexpected is simply a helpful mindset to have. Before investing time and money on any real estate deal, make sure that the sellers are completely ready to move forward. When I say completely ready, I mean emotionally, legally and economically. Very often people put their house up for sale to see how much they can get, but they are not yet ready to take the plunge. A good real estate agent will help you assess the situation and a good real estate lawyer will help you navigate what follows.