Buying A Home in Jerusalem

A Foreign Investor’s Guide

For many potential foreign buyers, the decision to make a home purchase in Israel, and in Jerusalem more specifically, is filled with a certain amount of anxiety.  Local customs and requirements are different than in the buyer’s home country.  There are currency issues, timing issues and legal issues to overcome.  Many foreign buyers don’t have the luxury of spending an extended amount of time in Jerusalem to thoroughly ‘do their homework’ and know what questions to ask.  As a result, they are forced to rely on several real estate professionals (e.g. lawyer, agent, mortgage consultant, engineer) for help in making a decision on whether or not to buy, and then what to buy.  Hopefully, this article will shed some light on details of the home-buying process, and highlight the critical decisions necessary to make a home purchase easier and less stressful on the foreign investor.

In concept, the process of buying a home in Jerusalem is the same as anywhere else.  Sellers place their properties up for sale and buyers look over the existing inventory of properties available.  If they see something they like, they make an offer to purchase.  A mutually agreed upon price is negotiated, as well as payout terms and occupancy date.  A contract is drawn up and executed, and title is transferred to the new owner.  There are, however, some fundamental differences in the manner in which properties are registered and in the times at which certain steps take place.

There is very little privately owned land in Jerusalem.  Most land is owned by the state via Keren Kayemet L’Yisrael, which is leased on a long-term basis to development companies and individual homeowners.  These long-term leases (usually from 50-200 years) are generally renewed automatically, and have little or no impact on the day-to-day reality of home ownership.  Another significant block of land in Jerusalem is privately owned by several churches.  Many of these parcels are also leased on a long-term basis either to Keren Kayemet or directly to individual owners.  Since the potential buyer is dealing with an organization other than the State, it is critical to know all of the details of the long-term lease (e.g. time remaining until renewal, possible problems with renewal and the cost of renewal).  According to Roger Friedland, co-owner of RE/MAX Vision in Jerusalem, “in most cases, transactions involving “church land” go through just like any other deal, but identifying whether the property you want is on church land, and knowing how to proceed is critical to the successful conclusion of the purchase.  For this reason (and others), it is strongly recommended that every buyer of real estate in Jerusalem engage the services of an attorney who specializes in real estate law, and is knowledgeable of all the various types of issues that need to be dealt with.  A general practitioner or specialist in another field simply doesn’t have the experience or qualifications to provide the necessary guidance to the foreign buyer.  Selection of the right attorney is a major factor in achieving a successful outcome.”

Another significant difference in the process is the lack of an earnest money contract; familiar to most home buyers in the U.S. and Canada.  The key legally binding event in every home purchase in Jerusalem is the signing and execution of the Contract of Sale/Purchase.  According to Friedland, “this is the point of no return, after which penalties attach for any breach of contract, causing the deal to collapse.  The exact language of the contract, while many provisions are standard, is very important to a successful outcome.  This is another reason to have a competent real estate lawyer.”

A third difference involves the date of occupancy and the transfer of title to the property.  While the contract execution is the legally binding event in the purchase, there are still unfinished steps to be taken.  In contrast to the ‘closing’ held in the U.S., payout of the purchase price is typically agreed upon anywhere from immediately up to 1 year from the date the contract is signed.  Possession and occupancy of the purchased property generally don’t take place until the purchase price is paid in full.  Transfer of title also occurs only after payment of the purchase price and possession.  To protect buyers, a warning is placed on the title of the property that the property is ‘sold’.  It cannot be re-sold by the seller as long as this warning exists.  Once the purchase price is paid in full, the warning is removed and title is transferred

Peripheral costs also differ from similar transactions elsewhere.  A good real estate lawyer will charge between .5 – 1.0% of the purchase price for his/her services.  The customary real estate commission is 2% of the purchase price from the seller and 2% from the buyer. Mortgage consultants also charge according to the size of the mortgage obtained.  Engineers generally charge a flat fee for their services.  There is also a purchase tax imposed on buyers, which is payable within 50 days of contract signing.  The buyer’s attorney should determine the exact amount of this tax since there are several factors that affect this tax.  In Friedland’s opinion, “the selection of each of these professionals is crucial to the successful completion of the purchase with a minimum of fuss and headache.  The more accurate information the potential buyer receives, the less likely he/she is to encounter unexpected problems along the way to a contract signing.”   The old adage “you get what you pay for” holds especially true for what is the single largest financial decision in most people’s lives.  While the process may seem difficult and daunting, working with the best professionals can make dreams come true.