This article, part of a series of “how to” articles that focus on various aspects of purchasing a home in Israel, will address issues relating to making purchase payments.
First Payment
When buying an existing property in Israel, it is common for the first payment to be between 15% to 30% of the purchase price. All purchase payments go directly to the seller, and the buyer is protected by immediately placing a purchase lien on the property.
Additional buyer protections include: (1) upon contract signing, the seller gives the buyer “power of attorney” to act on the seller’s behalf and register ownership rights to the purchaser upon completing all the payments, and (2) if there is an existing mortgage, the purchaser will receive a letter of intent from the seller’s lender stating the mortgage amount and that they will discard their lien upon mortgage repayment, which is typically settled with funds from the buyer’s second payment.
The first payment is usually paid by bank check and subsequent payments are accomplished via bank wire. Parenthetically, in Israel, purchase-related costs, such as the acquisition tax, lawyer’s fee and agent’s fee, are disbursed soon after contract execution and first payment.
The final payment, made prior to receiving keys, is generally done by bank check, which will allow the buyer to receive the keys immediately. If the final payment is wired, the buyer will have to wait a day or so for the money to clear before gaining access to the property.
Payment Schedule
If the closing is relatively short – usually three months or less – there is normally one initial payment and then a final payment before receipt of the keys. However, if the contract to closing period is longer, the buyer will be required to make multiple payments. For example, we recently had a deal in which the closing occurred eight months after contract execution. The payment schedule was 20% on signing, 30% two months later, another 30% two months later, and 20% prior to receiving the keys. Contrast that transaction with another deal that was signed just days later, in which the purchaser deposited 25% upon contract and paid the final 75% ten weeks later at closing.
Buying on Paper
When purchasing a home “on paper” or “off plan” - which means buying a home under construction - the first payment can range from 15% to 50%, depending on when during the construction process the apartment is bought: if it’s early in construction then the initial payment will be lower, and if it’s later in the process, the initial payment will be higher. Subsequent payments are generally linked to construction milestones. In some developments, purchasers might have the option to make an initial deposit and then pay the remainder at the end of construction, prior to receiving the keys. As an aside, when buying on paper, all unpaid portions of the purchase price are linked to the building construction index (somewhat akin to the CPI inflation index in the US), which over the past few years has risen from between .5% to 2% per year.
Logistics
Until a few years ago, lawyers would set up separate bank escrow accounts for each transaction and make all payments from the funds wired by the overseas client into that account. However, due to today’s strict laws against money laundering, creating these accounts has become very challenging. Consequently, many buyers now retain the services of foreign exchange – or forex – companies to transfer their overseas funds into shekels and make all purchase-related payments on their behalf. These forex companies tend to give better rates and our clients have found interacting with them in their mother tongue to be less stressful than dealing with Israeli banking institutions.
This article is meant for informational purposes only. Please contact an attorney should you require legal counsel.
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com.