Buying property in Israel: Deciphering the lingo, Part 1

Over the years, this column has brought you legal analysis and important news and tips about navigating the process of buying property in Israel. Recently we have been approached by several of our readers to refresh our guide to buying your home in Israel for the 2016 market.

As our aim is always to inform the layman about the legal aspects of the real-estate market in Israel, we decided to create a series of articles to do that. This series will guide you through the steps of a property transaction via an essential glossary of legal definitions.

This week we start with what is important for beginners and advanced purchasers alike: Make sure you know what the basic lingo actually mean.

Finding your property The real-estate agent:

• There are thousands of registered real-estate agents in Israel, and it is illegal for someone to act as a real-estate agent without being licensed by the Registrar of Real Estate Agents. Before the Real Estate Agents Act was enacted in 1996, anyone could serve as a middleman on property transactions. The main obligation, of course, is to pay the agreed-upon fee, act fairly toward the real-estate agent, and inform him if a deal is about to be sealed on a property that he has shown you.

The preliminary stage Bloc and plot numbers:

• Most buildings, apart from their ordinary street address, have an identifying grid coordinate. If you look at the Land Registry maps, you will be able to put your finger on the building in question. To identify the exact coordinate, the country is mostly divided into blocs (gush) and subdivided into plots (chelkah). A building is given a plot and bloc number, and the apartment is given a subplot number. All these numbers must appear in the preamble to a purchase contract

• Memorandum of understanding: You usually do not sign a letter-of-intent memorandum of understanding when you buy a secondhand apartment. However, you are sometimes presented with a short one- or two-page letter that purports to sum up the terms of the contract. This is called a zichron devarim – a memorandum of understanding.

Sometimes this document is pressed on you by the real-estate agent, who is obviously keen to see a deal done. Notwithstanding what anyone else tells you, never sign a memorandum of understanding. It is absolutely binding, but the lack of clarity inherent in a short document can cause great problems.

There is a good reason why Israeli house-purchase contracts run to five and 10 pages. There are all kinds of angles you would not know that have to be covered. But your attorney will, and they are not covered in a memorandum of this sort. Innumerable lawsuits stem from arguments over the exact interpretation of terms in signed memorandums of understanding. It is worth waiting patiently until a proper contract can be drawn up.

If you have signed the zichron devarim, you should be aware that the document triggers the tax liabilities that attach to purchasing an apartment. For example, within 40 days of the date of signing the memorandum, you will be required to pay acquisition tax. Unlike purchasing secondhand apartments, when you buy a new apartment, you often sign a letter of intent when you put down a deposit. This is sometimes not a binding document, and you do not lose your deposit if you change your mind.

Some companies, however, make you sign a letter of intent, which does not bind them but does bind you. If you change your mind or do not like the contract presented to your lawyer, you could lose your deposit. For this reason, you should not sign any such document before showing it to your lawyer.

• Technical specifications schedule: When buying new property, the contract has two important appendices to it. One is the technical specifications schedule (mifrat techni). This tells you what kind of ceramics you will get in your bathroom, what type of marble your counters will have and the height of the rooms.

Go through this with great care, preferably asking your attorney to recommend an architect or designer who will be able to help you visualize what you are getting. People often ignore the mifrat techni, and they do so at their own risk because it is one of the important keys to understanding what you are buying.

Often you will wish to change the specifications of particular items in the mifrat techni. You may prefer to have more expensive cabinetry or different floor surfaces. There should be a table within the contract that shows the value of each item, so you can credit what the builder has contracted to give you toward your preferred purchase.

Another important point: Builders make most of their money on unexpected changes that you will request as the building proceeds. It is well worth thinking about all these in advance, so you can bargain with the contractor to include those changes in the price beforehand. For the contractor, the cost is usually minimal, and to persuade you to buy, he is often willing to include that in the price. If you ask for the same changes an hour after you have signed the contract, you will find that they can be much more costly.