The following article appeared in Haaretz online on July 13, 2009.
For the full article, please see: http://www.haaretz.com/hasen/spages/1099727.html

The Real Cost of Buying a Home in Israel

By Raz Smolsky

Couples who decide to buy a new home from a contractor assume the price listed at the sales office is what they will pay, but have they checked the number of electrical outlets in the home? Do they know that a “standard kitchen” is a minimalist affair that will not meet their day-to-day needs? And what about the lawyer’s fees, purchase tax and the mover? Those alone are tens of thousands more than the price tag.

When buying a home second-hand, the process is even more complicated. In the best-case scenario, the buyers choose a renovated home in order to avoid the hassle. However, even such homes usually need “minor changes.” Just repainting will cost at least NIS 4,000 for example.

People who choose a home that needs renovating almost always exceed their budgets and compromise on some elements of the renovations. Been dreaming of a romantic island in the kitchen? NIS 5,000. Or a new LCD television in the living room? At least NIS 3,500.
Installing parquet floors costs NIS 15,000 to NIS 22,000. Redoing the bathroom costs NIS 25,000 to NIS 30,000. Replacing the plumbing is another NIS 10,000.

The main problem is that buyers consider these expenses, which equal 5% to 10% of the cost of a home, only right before they move in. The mortgage was signed for many months before, and took into account only the price of the home.

Many couples understandably try to take as small a mortgage as possible, but when they do not consider the additional costs, that’s when the trouble starts, accompanied by even higher expenses.

Here, then, is a detailed list of all the expenses to expect when buying a home.

Purchase tax is a graduated tax, determined by the value of the home. Tal Ron of the Ron Drihem & Co. law firm explains that a home that costs up to NIS 1,026,660 is exempt from purchase tax. For homes costing between NIS 1,026,661 and NIS 1,442,780, you pay 3.5% tax on the part above the exemption. For example, a home that costs NIS 1.4 million will cost you NIS 13,000 in tax. Sound like small change. You will always be short just when you need it.

“Sometimes the authorities do not accept the price declared by the buyer and seller,” says Ron. “Then an appraiser is sent to set the ‘true’ value of the home, and tax is charged on that figure.”

There is also capital gains tax, an important consideration for people selling one home to buy another. If a home is sold for more than it was purchased years ago, the sellers must pay tax on the difference.

There is no way to avoid the lawyer’s fee, and it’s best not to try. You can look for a friend to draft a contract for free, but a contract for buying a home involves legal complications and it’s doubtful you’ll find anyone willing to do you such a favor. Ron says the lawyer’s fee ranges from 0.5% to 1.5% of the home’s value, and many lawyers charge a minimum of NIS 5,000 to NIS 10,000. If the apartment costs NIS 1.4 million, the lawyer’s fee will be NIS 7,000 to NIS 21,000, including VAT.

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