Top 5 Misconceptions When Purchasing a Home in Israel
By Amira Solow Adv.
Real estate and Inheritance Attorney
With all the new families making Aliya and moving to Modiin as well as other parts of the country, there has been a constant increase in purchase transactions as well as rentals, typically commencing spring time and escalating through the summer. Some people choose to buy a home while still abroad, prior to their Aliya, thus, securing a home in Israel waiting for them upon arrival, while others choose to rent, test a community and area and then purchase. Buying a home in Israel does not necessarily need to be a complicated and stressful experience, as long as buyers avoid the following misconceptions and receive all the relevant information and professional guidance.
A Memorandum or “Zichron Dvarim”, is a letter of agreement which details the basic information agreed by the parties such as: price, date of completion, payment schedule etc. In many cases one of the parties insists on signing this document and often people do so prior to consulting with a real estate attorney. Most attorneys highly recommend you DO NOT sign such a document as it is a binding legal contract between the parties. There are many details to check and work out prior to the signing of the final sale agreement and once a memorandum has been signed, one cannot just back out of it. If a buyer does not fulfill all the conditions of the memorandum, he may incur financial penalties.
The concept of title insurance does not exist in Israel, instead, it is an integral part of the real estate attorney’s job to determine that the property is properly registered in the seller’s name in all relevant registries such as the Land Registry (Tabu), Israel Land Authority, Housing Company etc., and make sure that all attachments such as storage rooms, gardens and parking spots are included in the registration as well. Additionally the attorney must verify if the seller has any outstanding mortgages, pledges, liens or other encumbrances on the property, and plan the payment schedule accordingly. It is advisable to hire the services of a professional engineer prior to signing of an agreement to ensure that the house was built properly and that there are no major dampness or leakage problems. On top of this, the engineer can also verify that no structural changes have been made without obtaining a proper building permit. Having a certified appraiser review the property in advance will ensure that the house is valued correctly and that the sale price is in accordance with the estimated value. One should keep in mind that submitting a proper appraisal is one of the requirements of mortgage banks as the approved mortgage is calculated as a percentage of the assessed value.
In Israel, a home purchase payment schedule is often spread out over a period of time. This is especially true when buying from a construction company, which has just started building a project which may take several years to complete. A buyer may prefer to push off taking a mortgage until later stages in the transaction, and if possible until the date of completion, to minimize payments of monthly rent and mortgage payments simultaneously.
While a seller is responsible to pay the “Capital Gains Tax” unless he has an exemption, the buyer is required to pay the purchase tax. Buyers often hastily ask for the “Oleh” discount, not realizing that in certain cases there are better discounts to request such as the discount for Israeli residents buying their first/sole home. A buyer may end up saving thousands of Shekels just by proper tax planning. It is imperative to examine the issue of “betterment tax”, its influences and whether it applies to your transaction.
As abovementioned, the closing date or completion date may be quite a while after the signing of a purchase agreement. There are various documents that must be presented by the sellers by that date, lest a portion of the last payment be held in escrow. All paperwork should be completed in advance to avoid complications with the mortgage bank releasing the final payment. The parties usually meet at the property and sign a protocol detailing the various utility meter readings as well as any discrepancies found in the property. When purchasing from a construction company a transfer of possession protocol is signed and it is advisable to have an engineer inspect the property beforehand.
To avoid the stress and complications which may be involved in buying a property in Israel, make sure to make calculated and informed decisions and use the services of qualified experienced professionals who can ease the process and guide you into a smooth and clear transaction.
Disclaimer: The information provided is of a general nature and should not be construed as legal advice.