Buying a second-hand apartment
12 checks you must make before signing a sale agreement
Most of the risks in a second-hand apartment transaction can be uncovered in two weeks of checks before the purchase. These are the checks, in order of importance, and what to do when one of them does not add up.
Relative to the sum a private individual commits to, an apartment sale agreement is one of the shortest documents he or she will ever sign. When a transaction collapses, it almost always turns out that the missing information was available in advance. Below is the recommended order of checks, from the critical to the less critical.
1. An up-to-date Land Registry extract: who really holds the rights?
The first check is who is registered as the holder of the rights. For properties registered in the land registers, an up-to-date Land Registry extract is obtained. For properties not yet registered, a confirmation of rights is obtained from the Israel Land Authority or from the housing company. A name that does not match the seller's identity card, joint ownership, or registration in the name of a deceased person: all of these must be dealt with before signing, not after.
2. Charges, attachments and existing cautionary notes
The extract also reveals what encumbers the property: a mortgage in favour of a bank, an attachment on behalf of a creditor, a cautionary note in favour of a previous buyer, or a note concerning expropriation. A mortgage is a normal situation that is dealt with as part of the transaction. An attachment, by contrast, requires preliminary inquiry: who imposed it, on what basis, and how much is needed to remove it. A transaction in which the buyer's money is paid out before the answers are clear is a dangerous transaction.
3. Who is authorised to sign the agreement?
An apartment forming part of an estate requires an inheritance order or a probate order, and sometimes court approval. A seller for whom a guardian has been appointed requires the approval of the Family Court. A seller staying abroad requires a duly authenticated power of attorney. A company requires a resolution and evidence of signatory rights. Each of these situations adds weeks to the timetable, so it is worth identifying it at the outset.
4. The building file at the local authority and unauthorised construction
This is the check people tend to skip, and it is the one that produces the expensive surprises. The building file shows the original permit and everything added since: an enclosed balcony, a pergola, a storeroom converted into a room, internal partitioning, or a protected room (mamad) whose use has been changed. Unauthorised construction passes with the property to the buyer. It may block bank financing, lead to a demolition demand, make a future sale more difficult and give rise to criminal planning proceedings. Checking the building file takes only a few days.
5. The area of the apartment, parking and storeroom
Compare the area registered in the extract and in the condominium plan with the area shown in the advertisement and on the ground. A discrepancy is not necessarily a defect, but it must be known and priced. It is particularly important to check whether the parking space and storeroom are attached to the apartment in the extract, or whether this is actual use arranged by agreement between the neighbours. An attachment that is not registered is not sold with the apartment.
6. Betterment levy and pending plans
A betterment levy is imposed on the increase in the value of land following the approval of a plan, and is usually borne by the seller at the time of sale. Check with the local committee whether there is an open or expected charge, and make sure the agreement states expressly who bears it. It is also important to check whether there is a pending plan that may affect the property or its immediate surroundings.
7. Municipal tax (arnona), house committee and utility debts
The seller's past debts to the municipality, the house committee, the electricity company or the water corporation must be settled before delivery. The municipality's certificate for the purpose of transferring the rights is issued only after the municipal tax debts have been settled, so this is a practical condition for completing the transaction, not merely a matter of fairness.
8. Calculating purchase tax, and checking the seller's betterment tax
You need to know your purchase tax before setting the price and the payment schedule. The difference between the sole-apartment brackets and the additional-apartment brackets is significant. At the same time, it is important to check the seller's betterment tax liability as well: a seller who did not take it into account may discover in the middle of the transaction that he cannot meet the terms, and that becomes your problem.
| Value of the apartment | Sole apartment | Additional apartment |
|---|---|---|
| Up to NIS 1,978,745 | 0% | 8% |
| 1,978,745 - NIS 2,347,040 | 3.5% | 8% |
| 2,347,040 - NIS 6,055,070 | 5% | 8% |
| 6,055,070 - NIS 20,183,565 | 8% | 10% |
| Above NIS 20,183,565 | 10% | 10% |
9. Financing and mortgage: aligning the bank with the payment schedule
An approval in principle for a mortgage is not an undertaking to grant it. Once there is a specific property, an appraisal, an inspection of the property and a sale agreement that meets the bank's requirements are needed. The payment schedule in the agreement must match the schedule the bank allows; otherwise the buyer finds himself in breach. It is advisable to provide in the agreement for a reasonable period of time to obtain the mortgage.
10. The registration status of the condominium
Some buildings have not yet been registered as a condominium, and some apartments are registered with a housing company. In each case, the process for transferring the rights is different and takes a different length of time. It is important to know in advance who carries out the registration, what is required of them and how long it takes, so that the agreement does not set dates that cannot be met.
11. Tenants, protected tenancy and actual use
A let apartment is sold with the tenant in it. Check the tenancy agreement, its end date and the security that was given. Protected tenancy is an entirely different matter, and has a dramatic effect on the value of the property and on the possibility of vacating it. You should also check whether part of the property is actually used by someone else, for example a room let separately.
12. The payment mechanism and security
The last check is in effect the outcome of all the previous ones. The payment schedule should be built so that each payment is matched by corresponding security:
- The first payment is made close to the registration of a cautionary note in your favour
- Interim payments are transferred to trust or directly to the seller's bank against a letter of intent
- A designated amount is held in trust until all charges have been removed and the tax certificates have been obtained
- The final payment is made only on actual delivery of possession, against a delivery protocol
A sound transaction is not one in which nothing goes wrong, but one in which, even when something does go wrong, your money is still somewhere it can be recovered from.
What do you do when a check reveals a problem?
Discovering a problem does not necessarily mean the end of the transaction. Unauthorised construction can sometimes be regularised, an attachment can be removed out of the consideration, a debt can be set off, and a betterment levy can be priced in. What matters is that the problem is uncovered before signing, while there is still bargaining power and while it is still possible to build a mechanism to deal with it. After signing, each of these becomes a negotiation from a weaker position, and sometimes legal proceedings.
Questions and answers
How long do the preliminary checks take?
In most transactions the checks are completed within a few business days to about two weeks, depending on how quickly the seller provides the documents and how quickly the local authority responds regarding the building file.
Can the checks be done before the price is agreed?
Yes, and it is usually advisable. A focused review of the extract and the building file before the price is agreed makes it possible to price the property correctly and to avoid committing to a transaction that is not worthwhile.
I signed a memorandum of understanding. Is it binding?
In a real-estate transaction, a memorandum of understanding (zikhron dvarim) may be regarded as a binding contract, depending on its content and level of detail. You should therefore not sign such a document without taking advice first, even when it is presented as a non-binding draft.
Not sure the deal is safe? Let's start with a conversation
In an initial conversation we will go over the property, the other party and the payment schedule, and tell you what needs to be checked before you sign.