You’ve decided you want to buy real estate in Israel. Perhaps you’re planning to make Aliyah, or you just want to take advantage of the Israel real estate market, where individual condominium properties can sell for up to U.S. $15 million today. Or perhaps you’ve inherited a property in Israel, but it’s not located where you want to live, so you’ll sell that property and buy one where you want to live.
Buying property in Israel is completely different from the process that currently exists in the USA. Everything you might be familiar with in the real estate world in the U.S. is handled differently in Israel.
Differences in Buying Real Estate in Israel vs. United States
Let’s take a look at some of the major differences you will encounter when you begin the process of buying residential property in Israel.
Making the Offer
When you make an offer to buy a piece of property in the U.S., you usually make a written offer to the seller or the seller’s agent. In Israel, the process of making the offer is much less formal: negotiations can be conducted verbally—in person, over the phone, or by email—and it may take some time until both you (the buyer) and the seller are in agreement on all the terms and conditions involved in the purchase.
Self Service vs Full Service
In the U.S., most residential real estate transactions are conducted by the seller’s broker/agent. Sometimes more than one broker/agent is involved. Sometimes you (the buyer) also have your own agent. However, most transactions are conducted by a broker/agent, who generally handles the various aspects of the buying process, including but not limited to negotiation, paperwork, and escrow.
In Israel, a broker/agent usually does not handle the process. Buyers and sellers usually handle the negotiation process themselves. You then hire a qualified Israeli real estate attorney experienced in the real estate purchasing process to ensure everything is legal by the book.
Disclosure and Discovery
In the U.S., the seller of a residential property is required by law to disclose any known defects and issues with the property. In Israel, you buy property AS IS. It is now up to you to determine if there are any defects or issues that need attention. Your attorney must engage the services of an engineering company to expose/discover any possible defects.
When you purchase a new property that is not yet completed, we advise our clients to engage that engineering company half a year after you occupy the new property.
Due Diligence
The process of conducting your necessary due diligence is very different in Israel and the U.S.
In Israel, your due diligence must all be conducted before you sign the purchase agreement. In Israel, you are responsible for conducting the title search. You are responsible for inspecting for any damage or defects (e.g., mold or termites). You must arrange your own appraisal. And you must have the financing in place before you sign the purchase agreement. You must inspect the property personally, and this means that the owner/s are still living there. When you arrive to inspect the property, the place may be a mess, there may be kids and toys all over the place, and you will just have to deal with that.
In the USA the process is almost the exact opposite. The first thing you do after seeing the property – often at an “Open House” or by arrangement with the owners or their agent – is to submit a written offer. Only then does the due diligence begin. You will not have to conduct the title search yourself – the title insurance company will conduct the search. An appraisal will be done for you. Inspecting for termites or mold will be conducted for you. And you must apply for financing. If anything goes wrong with any of these elements, your deal will not go through until they are rectified/solved.
Property Tax
Again, there are differences between the two countries as to how property tax is handled. In Israel, property taxes are determined by the local municipality where the property is located. In the U.S., property taxes are levied by local governments and will vary based on the property’s assessed value (the appraisal).
Escrow and Closing
The escrow and closing process is different in the two countries. In the U.S., funds are typically placed into an escrow account. Closing is typically conducted by a neutral third party. In Israel, closing is usually completed through a trust account, like an escrow, which will be opened by the attorneys representing either the buyer or the seller.
Mortgage Interest Deductions
In the U.S., the law allows homeowners to benefit from mortgage interest deductions. This allows them to deduct the interest paid on their mortgage from their taxable income. These laws incentivize home ownership, and can usually result in tax savings which can be significant.
However, in Israel, mortgage interest deductions are generally not available. This makes the tax implications of homeownership radically different.
Mortgage Types
In Israel, most mortgages are not fixed. Most mortgages in Israel are the floating-rate type. The interest rate you will pay is linked to the prevailing interest at the Bank of Israel, and your interest rate will vary as the Bank of Israel’s interest rate varies.
In the U.S., you may be able to choose between a fixed interest rate and a variable interest rate. You have some flexibility as to the terms of repayment of the mortgage.
Down Payment Requirements
The down payment you will have to make on an Israeli property is usually much higher than is common in the United States. Until the crash of 2007, you could buy a property with as little as a 10% down payment. After the crash of 2007, banks increased the minimum down payment on most residential mortgages to 20%. In Israel, you will typically need a down payment of 25% if you are a resident of Israel, and up to 50% if you are a non-resident of Israel.
In many cases with smart planning, we achieved for buyer non-residents a much lower down payment of 30%
Loan Term Length
In the U.S., the length of your loan is usually longer than it is in Israel. In the U.S., loans are typically granted for 15 to 30 years. In Israel, terms are generally shorter and may range from 10 years to a maximum of 25 years.
Age Limit on Mortgages
In the USA, there are no age limits as to who can get a mortgage. In Israel, however, it is very different. The maximum age for you to be able to get a mortgage in Israel is 75 years of age. There may also be many other restrictions for purchasers who are aged between 60 and 75. Your Israeli real estate attorney will provide you with more details about restrictions prevailing after the age of 60.
Prepayment Penalties
In the U.S., borrowers may be subject to prepayment penalties if they choose to pay off their mortgage before the agreed-upon term. In Israel, however, there are no penalties for early repayment of a mortgage.
Using Brokers vs Attorneys
When you buy a property in the United States, the entire process will be handled and conducted by a licensed real estate broker or agent. This broker/agent will conduct all the negotiations between you and the seller and handle all the paperwork. In Israel, buyers usually rely heavily on a property attorney. Make sure your law firm is well experienced in representing non-residents in buying and selling property in Israel so as to ensure a smooth transaction and everything is binding.
Contact Aharoni Law Firm Today for A Free Consultation
The Aharoni Law Firm is uniquely qualified to handle your property purchase in Israel. We have many years of experience and are familiar with the intricate details of the Israeli real estate business. Our head office is in Tel Aviv. We also maintain offices in New York, Miami, Los Angeles, and Toronto. Call us or fill out the online form to discuss how we can expedite your Israeli property purchase and handle everything smoothly.
