HOW DOES BUYING PROPERTY IN ISRAEL DIFFERS FROM NORTH AMERICA?

When you decide to purchase a property from abroad, here are the steps.

1. We as your purchasing agent will help you identify the property and negotiate with the vendor, or vendor’s agent the price, preferred closing date, general payment terms, etc. There is no formal signed offer to purchase with a sign back. Everything at this point is non-binding.

2. When you and the vendor have agreed in principal to the above terms, then the respective agents forward the information to their respective attorneys. The attorneys negotiate the details of the contract and prepare everything for signing. We will help you identify an attorney, usually a native english speaker who has experience dealing with foreign purchasers.

3. If you as the purchaser will not be in Israel for the signing of the contract, then you need to provide your attorney with a “power of attorney.” By law, you either have to do this in person with the attorney here in Israel, or you must appear at the Israeli Consulate with the power of attorney there. The attorney will help you with all the forms and instructions on how to do this. Luckily there is an Israeli consulate in Los Angeles.

4. At the time of signing, the purchaser will pay around a 10% down payment. There will usually be another 10% on what you would call “closing” and one or two payments between, depending on the length of time before closing and also if the vendor has  a mortgage on the property. The property must be free of any mortgage before ownership is transferred. It’s a bit different than in the USA where I believe everything can happen all on the same day. Your attorney will explain all these details.

5. The attorney can open an escrow account to process your payments, but this is not usually the best way to handle the payments. It’s best if you have your own bank account in Israel and wire the funds to your own account via a forex company. You’ll save on the exchange rates and wiring charges. The forex company can then provide your attorney with payments in Israeli shekels. Currently almost all deals are done in shekels. I believe even if you are not here, the attorney can open an account for you with the power of attorney.

CLOSING COSTS

In addition to the price of the apartment. These are the other significant costs of closing:

1. Real Estate Agent fees. In Israel, the vendor pays their agent and the purchaser pays their agent. Typically this is 2% of the purchase price + VAT (value added tax is currently 16% – it dropped from 16.5% on January 1, 2010).

2. Attorney fees: For foreign purchasers the rates range from 1% to 1.5% depending on the complexity of the deal. If there is no mortgage involved, we have been able to find attorneys to do it for 1%. If there is a mortgage and the attorney is involved the fee is usually 1.5% . All prices are plus VAT.

3. Land Purchase Tax: There is a graduated scale of taxation. Depending on the value of the property this will range from 0% to about 4%. We’ll be able to tell you how much the tax would be before you begin negotiating price with the vendor. For properties around NIS 1,500,000 the rate is around 2% range

Your total closing costs should be around 5% – 6% of the purchase price.

Mortgage: There is the option of getting mortgage financing in Israel for foreigners. I would strongly suggest you use a broker for this as it is more complex for foreigners. Mortgage insurance needs to be acquired locally and rates vary widely between banks. Financing can be up to 70% depending on the situation. The brokerage fee is usually 1% of the mortgage.

Foreign Exchange: Wiring to and exchanging funds with Israeli banks can be very expensive (that’s part of the reason we didn’t have a banking crisis last year!). When the time comes we’ll help you find much better rates through our network of contacts.

I  hope this gives you more clarity about the process. If you have any questions let me know. There definitely are many differences from the USA system, but the system works here. It just takes a bit of getting used to. We’ll make it as pleasant as we can for you. If you’d like to talk with one of our clients, I’ll be happy to set it up for you.

PROPERTY AND CONTENTS INSURANCE

Insuring Your Home in Israel

When considering purchasing real estate in Israel, you should be aware of the following aspects of property and contents insurance as operated by Israeli insurance companies. While policies are required to conform to a minimum level of coverage laid down in law, most companies provide a much more extensive level of coverage.Property Insurance Property insurance is designed to insure against fire, rain, snow, hail, break-in, wilful damage and third party liability. If you have taken out a mortgage, you are required to insure the property, the policy being written in favour of the mortgage bank. The mortgage bank offers an insurance scheme, which is normally about 10% more expensive than the policies offered by insurance companies, and also does not include third party liability, and contents insurance cannot be included in the policy. If you have a mortgage, coverage must also include earthquakes and water damage from broken pipes or installations. Otherwise, earthquake coverage is optional. Third party liability is for 500,000 NIS on a standard policy. This amount can be adjusted upwards if required. The rate for property insurance including earthquake coverage and third party liability is approximately 150 NIS per 100,000 NIS cover. If earthquake damage is not covered, the premium reduces to 50 NIS per 100,000 NIS. Properties are valued for insurance purposes according to the cost of construction, at a rate of $800-$1,000 per sq.m. If you are planning leaving the apartment unoccupied for more than 60 continuous days, an additional premium is charged for both property and contents insurance. Contents Insurance Contents insurance is designed to insure against fire, theft, wilful damage, third party liability, employers liability, water damage, all risks coverage for jewellery, TV’s, video equipment, home computers, faxes and sound equipment up to 10% of total value of contents, bikes up to 750 NIS per pair, glass surfaces and windows, marble and sanitary ware up to 5% of total value of contents. Coverage for all risks for jewellery and electronic equipment in excess of the standard 10% of total contents value can be purchased at a rate of 4% of the excess value in the case of jewellery and 0.80% for electronic equipment. All risk coverage can also be obtained for photographic equipment, cameras, video cameras etc. The rate for contents coverage is around 500 NIS per 100,000 NIS value of the contents without earthquake coverage, and 600 NIS if earthquake coverage is included. Valuation of contents is made by a licensed assessor, but if you are bringing in a “lift”, the insured value of the lift as assessed abroad is sufficient. The assessor is also responsible for determining the type of anti-burglary security devices required, which range from bars on the windows and a “multi-lock” front door, through to burglar alarm systems linked to a security company by phone. The level of security required depends on the total value of the contents, the make-up of the contents, the storey the apartment is located on, etc. Water damage: You can elect to have water damage fixed by an insurance company approved plumber or by a private plumber of your choice. In the case of a private plumber, the deductible is approximately double the amount for an insurance company approved plumber, but the quality of work is generally better. Deductible Whilst varying from company to company in general we are looking at around 400 NIS. There are policies where the deductible reduces if there are no claims on the policy, going down to around 200 NIS after two complete years without a claim. In the case of earthquake coverage, the deductible is 10% of the insured amount. source Jewish Agency for Israel