Chapter 3: What are the typical steps in buying an apartment in Israel?
Word of mouth, social media, publicized government auctions, real estate agents, the internet, and firsthand sightseeing can be good ways to look for an Israeli apartment. If you have a general idea of what you’re looking for, online sales listings can be a very helpful resource.Professional real estate agents can also be a valuable and useful resource to help you find an apartment. If working with a real estate agent, it is recommended to find for a credible, professional real estate agent who advertises their track record, presents apartments to you transparently, has a good reputation, and doesn’t have any conflict of interest. Remember that real estate is like any other industry, in a sense that there can be high and less-than-stellar performers.In the context of a mortgage, pre-approval is when you go to a mortgage bank to find out how much of a loan you can get. The lender will examine all aspects of your financial picture and inform you of a maximum loan amount, typically taking 8-15 days. To fund an apartment purchase with a mortgage, the mortgage lender must have a representative branch in Israel. However, with many banks the pre-approval stage can be completed online.There are many types of mortgages on the market, and the pre-approval stage is generally when you will indicate which kind you prefer, and under what terms (this this can usually be changed later). Therefore, it is usually acceptable to complete this step immediately.
Initiating communication with an apartment owner:
If necessary, your lawyer or real estate agent could be the one to make first contact with the seller on your behalf. If you are not sure if an apartment owner wants to sell their apartment, or if they want to sell to you, your lawyer can act in trust to find out while representing your interests.
Negotiation is a series of offers and counter offers. When making an offer based on your research and budget, you may attach any time limit to the offer for the seller’s evaluation. If the seller does not accept your offer, there is a good chance they will come back with a counter offer. You may then accept it, issue a counter offer of your own, or walk away from the apartment. We advise to make the first price offer yourself, while subtracting a substantial margin for negotiation purposes, because this will allow you to grasp the seller’s negotiating position most effectively.Note that a seller might demand you sign a memorandum of understanding (MOU) during, or even before beginning the negotiation process. An MOU is a one page document indicating your intention to enter into a binding legal contract in the future, and laying out certain basic conditions. Since a seller can sign multiple MOUs with multiple buyers, among other reason, signing an MOU can often be quite risky.
The Warning Mark: Appearing as a footnote in the LRB registry, warning marks are unique to Israeli land law. A warning mark represents an undertaking by a seller to make a transaction or, to refrain from making a transaction on a specific parcel. When a warning mark includes the name of a buyer, it is said to be “in your favor.” Because only one warning mark may be registered for an apartment at a time, a warning mark is a concrete step in the apartment buying process.
Warning marks serves two purposes. First, to warn and inform anyone interested in an apartment that there exists an obligation on the part of its owner to change the apartment’s ownership status, and second, to prevent a landowner who has promised to conduct a transaction with Buyer A from making a conflicting transaction with Buyer B without Buyer A’s consent or without obtaining an affirmative court directive.Registration of a warning mark in your favour can be timed with, or constitute a condition for, the signing of an agreement such as MOU or contract, or act as an intermediate step to assure a buyer’s cooperation with the terms in a contract.
Signing a contract:Israeli law still dictates that real estate transactions must be made in writing, so once you have settled on the right apartment, negotiated a price, thought it over, and decided to buy the apartment, you will need to sign a purchasing contract with the buyer. A competent lawyer can write an airtight contract tailored to your specific situation, specifying the individual responsibilities shared by you and the seller, and will check and recheck all variables that could impact the sale before you commit to sign the agreement. Remember that due in part to the unique Israeli legal framework, remember that a property’s value is measured not only by its physical attributes but by the registration status and types of rights being purchased.
Appraisal:Though not required to do so, certain buyers (particularly investors) find reason to conduct an independent appraisal before or after signing a purchase contract, while others are obliged to do so in the context of mortgage underwriting (discussed below). If the latter, some banks may include the cost of an appraisal in the mortgage package, while other banks will not.
Mortgage Underwriting: During this step, after you have been pre-approved for a mortgage, the bank will make sure it is not too risky to issue its final authorization of the mortgage and transfer the requested money. Israeli banks require a signed purchase contract to begin wit the underwriting process. During underwriting, your application file at the bank will move from the mortgage sales desk to the underwriting desk, which will thoroughly investigate and verify that the apartment is worth what you’ve agreed to pay for it, and verify your credit and collateral are adequate before then issuing (approving), amending, or denying your mortgage loan.
See also Taking a mortgageRegistry:The registration of ownership rights in the apartment at the Land Registry Bureau is the last and final step in the sale transaction, and is the step through which your rights to the apartment are confirmed. The date for registration of rights to the buyer is typically in the post-delivery phase of the possession of the apartment to the buyer, or in parallel with it, after payment has been make to the seller. Occasionally, it is impossible to register rights at the LRB, such as in a when before architectural plans have been filed with the land registry. In such a case, the rights of a purchaser can be registered temporarily with an attorney, until it becomes possible to register them in the land registry, at which point the attorney mandated to do so immediately.
See also: Registry
Chapter 4: How long will it take to buy an apartment in Israel?
Although it is rare for to us encounter a buyer who wants to buy an apartment as quickly as possible (and for some buyers, timeline is not a factor), the most common question we are asked by potential apartment buyers is how long buying an apartment will take them.If you are a proactive and informed buyer who has read this guide and encounters no unexpected surprises in your buying process, and if you are buying under standard transaction conditions (discussed below), in our experience you could find and purchase an apartment in four months or less. On the other hand, if you encounter difficulties with registration of your ownership rights or with other elements in the buying process like financing, or if you want to buy into a collective or construction project, the process could stretch for many months or longer.
Standard vs. Non-Standard transactions:Because each buying scenario is unique, it is helpful to differentiate between standard and non standard transactions for the purposes of estimating how long the process will take. A standard transaction is a transaction which meets two conditions:
a) The transaction is made directly between the registered owner of the property and buyer, and not through a third party of any kind.
b) The rights to the apartment are sold “as is,” meaning the physical and legal condition of the apartment meets the requirement of the owner without additional physical or legal work being needed.Standard transactions usually can take among the shortest times to execute, but not always, especially if negotiations with the seller become drawn out. A non standard transaction, on the other hand, contains an element of legal or physical uncertainty that can increase or decrease the amount of time required to complete the transaction. Some common such scenarios are the following:
Indirect transactions via a third party::
a. Buying from a receiver: A receiver is an agent, usually an attorney, who is in charge of selling properties following a bankruptcy. One advantage of buying from a receiver is the ability to purchase the apartment very quickly, sometimes in a matter of days. However, the receiver might attempt to coerce you into making an initial deposit on the property before you have received adequate information.
b. Buying from a block-parcel company This is a type of legal entity that was widespread in Israel a few years ago, and although not legal anymore, it is still common. Years ago, it was possible to register a number of apartments together, from which tenants would then lease or gain shares. If you will be from a block-parcel company, the tenants must dissolve the company and register the rights to the apartment under their own name before you may buy the apartment, which can increase the turnover time.
Indirect transactions where the apartment is not sold “as is”:
c. A damaged or value-add apartment: A value-add or damaged apartment requires improvements. If buying such an apartment, you must weigh the cost of the required improvements against the low cost of the apartment, and if you will be buying the apartment for residence, also against the cost of the time required to fix the apartment, during which you might need alternate accommodation.
Please see also buying an apartment for investment.
d. Buying through TAMA 38. TAMA 38 is a popular Israeli government program for incentivizing reinforcement of apartment buildings against earthquakes, with new apartment units built onto specific buildings. Buying an apartment through TAMA 38 usually can take longer than usual, because contractors often build “projects” through combination contracts, and chances are that the rights to the apartment have not yet been fully registered. Note, TAMA 38 has caused the emergence of tens of thousands of new apartments for sale on the Israeli market.
e. Buying into a construction project: Depending on the completion stage of the project, or if it’s even started yet, this type of purchase takes at least as long as the construction of the apartment. The most important thing to be aware of is such a case, is that typically for an unbuilt apartment, the initial plans shown to you by the construction company before agreeing on a price do not bind the company. Rather, The plans that bind the construction company are the plans that are attached as an addendum to the purchase agreement and signed by the parties.In rare cases, you might find an apartment owner who must sell quickly, for one personal or legal reason or another. Although it can be tempting to act quickly, you should take care to act prudently and not to become frivolous. Very rarely is a ”find” everything it’s chalked up to be.