Take care not to be ripped off buying property in Israel

JORDAN MOSHE

“Foreign purchasers may be charged higher than normal agency and legal fees,” says the chief executive of Creative Estates Israel, Shaun Isaacson. “Because they are far removed from the Israeli market, they don’t realise that these charges are extortionate.”

Isaacson, a licensed realtor, property manager, and qualified lawyer, says that standard legal fees on property purchases are usually 1% plus VAT for foreign residents (more if the deal is particularly complicated). There’s also an agents’ commission fee, usually between 1% and 2% plus VAT.

“There is also a purchase tax of 8%, so buyers should typically budget an additional 12% of the cost of the property to cover fees,” he says. “In Israel, agents’ fees are paid by both buyers and sellers.

“Anything above 2% in agency fees would be excessive, and foreign residents who don’t know better are frequently overcharged.”

The fees (known as closing costs) are charged on top of the purchase price, a standard in any property purchase in Israel. Real-estate consultant with T&T Investments, Kim Bash, says that these costs include the agent’s fee, the lawyer’s fee, and purchase tax.

“Foreign buyers aren’t always aware of these closing costs,” Bash says. “It’s up to the agent to discuss and educate a prospective buyer before they meet, and show them potential properties,” she says.

“My rule is to have a conversation to explain all costs before I meet the client. This is usually done over the phone or by email before they even come to Israel. I also schedule a meeting with a real-estate lawyer [at no charge] to explain all the legalities of purchasing and the costs involved. I also encourage a meeting with a mortgage broker to discuss rates and financing opportunities.

However, they agree that it’s not uncommon for foreign buyers to be charged excessive amounts. Although agents who exceed standard rates can be reported, some have been known to take a chance.

“Unfortunately, I’ve heard of too many cases,” says Selwyn Hare, the manager at Home in Israel real-estate group. “The excuses are often that they charge for ‘project management’, which is a total hoax.”

Isaacson, too, knows of a number of buyers who’ve been charged as much as 2% more than the standard rate.

“Unfortunately, if the buyer has signed a contract with the agent agreeing to that commission rate, they are bound by it, and taking them to court would be a protracted, difficult, and expensive process. The contract that purchasers sign with an agent is a standard contract, but the commission percentage is usually added in by hand, after negotiation with the agent.”

Isaacson therefore recommends that any buyer check that their agent is registered – there is an online registry that they or a Hebrew-speaking friend can inspect.

Although potentially costly, Bash says that if a buyer has had a bad experience with an agent, they can be reported to the local justice ministry. If anything illegal has transpired, their license can be revoked.

It’s therefore essential that property owners who aren’t based in Israel make every effort to appoint a licensed property manager to safeguard their investment. Hare stresses the importance of using a recognised property management company, and Bash says that a good property manager may be necessary, even for a once-a-month check up on the property.

“Property owners are sometimes reluctant to hire a property management company because of the expense,” she says. “Rates range from 500 shekels a month (R2 192) to 1 500 shekels a month (R6 576) or more. It’s important to have someone check on the property.”

Isaacson agrees, stressing that a properly appointed manager is better than relying on a friend to manage your property. “You should get references from clients, and insist that they send you monthly statements, “he says. “If anything is amiss, you should ask them to send photos. You could also arrange for a local friend to visit the property and check everything is being taken care of.

“If your property is poorly maintained, or if the mortgage isn’t paid because the tenant defaults on rent payments, owners can find themselves in a real mess. Property managers should report regularly on all income and expenditure associated with the property, as well as reporting to the Israeli tax office if the rental income is above the reporting threshold.”

He says that you should also ask to see the rental contract that the agent signs with tenants on your behalf, and get it translated from Hebrew if necessary.

All three property experts emphasise the need for first-time foreign property buyers to understand the market, and get their information from a reliable and licensed real-estate broker and real-estate lawyer.

“When deciding what property to buy in Israel, always speak to disinterested professionals and don’t rely exclusively on the person who wants to sell you the property, Isaacson says. “It’s always better to find your own lawyer rather than using the lawyer recommended by agents – who may have a conflict of interest – and always ask for references.”

Bash concurs, “In Israel you need a good team, professionals who know the market, and most importunately, understand the client’s needs. There are many real-estate agents and often online listings on real-estate websites that aren’t current. Pick one agent, and get referrals for the agent if need be.

“Any purchase in Israel is a spiritual investment, not just a financial one,” Bash says. “If someone has the means to buy in Israel, they should – it’s a solid investment. The market continues to be strong, and prices are stable. The bottom line is you can’t go wrong.