Israel Homebuying Overview

How do you buy a home in Israel?

The basic process of buying a home in Israel is to find a lawyer, negotiate a price, take care of inspection and appraisal, secure a mortgage, and then go to closing with the help of a lawyer. The terms of closing will include a payment schedule and the date by which you receive your key.

There are myriad other details involved in the closing stage that we won’t focus on here, as your lawyer will guide you through them.

Find a Lawyer

Real estate is complicated and it makes sense to find a lawyer to work with before you start getting serious about negotiating a price.

There are many factors and considerations that require the guidance of a good lawyer as you go through the home-buying process.

Key traits to look for in a lawyer include:

• Reputation- does this lawyer come well-recommended by people who have used his or her services before?
• Responsiveness- will this person respond quickly to my questions and needs? Will they be available in time-sensitive situations where expeditious help is a must?
• Experience- how much experience does this person have with real estate transactions
• Accessibility- is this person easy to get a hold of by phone?
• Approachability- is this a person I feel good about and comfortable working with?
• Trustworthiness- does this person seem like someone I can rely upon?

If I had to sum it up, I’d say you want someone you can count on when it matters most as your lawyer.

Negotiating a Price

While market conditions determine the general range that a home should sell for, the final price that is reached depends on negotiation.

There are many emotional and psychological factors at play when buying or selling your home, and nobody is immune to their effects when entering a negotiation.

That’s why it makes sense to go into a negotiation prepared with:

1. Facts to support your position
2. The maximum price you are willing to pay
3. The price you actually want to pay
4. A lower price to start negotiations at
5. Planned and precise price points to use in the process
6. A plan for what to ask for in exchange for concessions

We plan to write more on the topic of negotiation in the future, but for now let it suffice to suggest that you either read a book on negotiation or find other resources online (blog posts, articles, YouTube videos) that may help. You may want to start with the results of this YouTube search.

You should make clear during negotiation that your offer and agreement is contingent upon a successful inspection and appraisal.

You should also get clarity on the basic timeframe during which the transaction should take place. Are you expecting a key in three months? Six months? A year? Six months seems to be about average for most transactions.

Appraisal

Once you’ve agreed upon a price with the seller, your next step is to order an appraisal and an inspection.

The purpose of an appraisal is to provide your mortgage lender with a reference point for deciding how large of a mortgage it may issue.

As a basic rule, banks are only allowed to lend you up to 75% of the lower of the appraised value or negotiated price of the apartment.

For example, if the agreed upon price of the property is 2,900,000 NIS, and the appraised value is 2,600,000 NIS, the bank will only consider the lower value of 2,600,000 NIS for the purposes of the mortgage and may offer no more than 75% of that value, or 1,950,00 NIS, as a mortgage. You have to cover the entirety of the difference between appraisal and price (300,000 NIS) as part of your down payment without the help of a mortgage.

Our home-buying calculator takes this issue into consideration when estimating your down payment, assuming that your appraisal will come in 10% lower than the agreed-upon price (unless you change that value to a different percentage, which you are welcome to do.)

Appraisers write lengthy reports about the neighborhood and street a home is found in, the condition of the building/apartment, and the size/features/desirability of the apartment. That includes the condition of the interior and whether or not improvements have been made.

Appraisers also consider the closing prices of nearby apartments in recent transactions.

While you are the party paying your appraiser, it is the banks whom appraisers really work for. They have to keep banks happy so that banks will agree to accept their appraisals in the future. If an appraiser appraises a home at a value too high, and that home gets foreclosed upon, and the lender cannot get a price close to the appraisal… that bank may decide not to accept appraisals from that particular appraiser anymore. For this reason, appraisers tend to give conservative estimates of value. They are afraid to lose the approval of the banks.

Some appraisers have a reputation for giving generous appraisals (despite the professional risk) if they are paid enough. Considering the significant impact of a low appraisal on the size of your mortgage, it may pick to seek out someone with a reputation for providing adventurous appraisals.

An appraiser may not be familiar with the unique dynamics of one street versus another. In religious neighborhoods, where residents only walk and do not drive on Shabbos, no two streets are quite the same. Differences may exist in terms of how close the home is to particular shuls, what specific flavor of Torah practice is most found on the street, and other factors as well. Thus, the appraiser may not realize that transactions on a nearby street are not truly reflective of the value of homes on your desired street.

Inspection

The purpose of an inspection is uncover any damage or issues with the apartment. Common areas of concern are water damage, cracks, and electrical problems.

If the property you are interested in is an apartment, you’ll want to find out from neighbors (not the seller, who is biased and may withhold information) if the building has a history of issues such as water damage. This is as simple as knocking on people’s doors to speak with them.

Secure a Mortgage

Obtaining a Mortgage involves numerous steps, lots of paperwork, and patience. Banks tend to break down your overall “mortgage” into four separate loans, each with different interest rate terms and sometimes different lengths.

We recommend finding a good mortgage broker because they not only save you a lot of time and work, they can also help you get better rates than you otherwise would.

In the section about appraisals found above, we mentioned how banks may only give you a mortgage based on the lowest of either your agreed-upon purchase price or your appraisal… and why your appraisal is usually going to be lower than your agreed-upon purchase price.

However, the story doesn’t end there. The law requires banks to verify that you have at least three months of income history proving that you can afford the monthly payments on your mortgage.

As a general rule, your mortgage payment may not exceed 40% of your monthly after-tax income. Borrowers who cannot meet this threshold will generally have to make larger down payments in order to reduce the size of the mortgage payments.

Your situation may vary and it is always wise to consult with a mortgage broker.

Closing

Once your mortgage is finalized, our lawyer will walk you through the final steps of closing. This will include signing the purchase contract.

Be sure to carefully consider the terms of the contract and remember that the payment timeline is negotiable.

If the seller needs a larger-than-ordinary payment in advance of closing, you may have leverage that you can translate into a reduced sale price or other benefit.