Legal Ground: Does a realtor have to tell you the truth?

In days gone by, anyone could decide to become a realtor in Israel and introduce properties to potential buyers.

By HAIM KATZ, SAM KATZ
The national market influences Modi'in's real-estate market. (photo credit: Courtesy)
The national market influences Modi'in's real-estate market.
(photo credit: Courtesy)
In days gone by, anyone could decide to become a realtor in Israel and introduce properties to potential buyers. Theoretically, the Knesset decided to make some order in this field of endeavor and did so by enacting the Realtors’ Act of 1996. It was intended to supervise those who wished to become realtors, put them through educational courses and generally regulate their activities.
For example, in the past there were lawsuits between people, one of whom claimed from the other that he had introduced property and wished to be paid a commission. Shopkeepers, neighbors and relatives, answering an incidental inquiry that led to the purchase of the apartment, all claimed a commission, even though they had nothing to do with the property field or the real-estate market.
The new law provided that unless a buyer had signed a letter hiring the realtor to introduce him properties, and unless that realtor possessed a valid real-estate license, a request for a commission was to be denied.
A further important point was that the realtor (under Section 8 of the law) was to function in good faith and with fairness and give his client all the information in his possession relating to the property in question. So, the answer to the question above is, on the face of it, yes: A licensed realtor has to act truthfully toward the potential buyer.
However, although there are 8,000 registered realtors in Israel, there are almost as many who are not licensed and still active, despite the law. Do they have a legal duty toward purchasers, even though they don’t have a license? And furthermore (a question that applies to licensed and unlicensed realtors), how far do they have to delve into the facts surrounding the property to have their clients properly informed.
A recent court decision attempts to protect the public by putting a heavy onus on realtors.
In a case revolving around a villa in Kadima, the realtor was requested by a couple from Tel Aviv to sell their house in the moshav.
Although they had owned the house, which they let, for several years, they were not acquainted with the fine details of the realestate market in Kadima. They turned to a local realtor who introduced them to a purchaser who offered NIS 1.05 million. The realtor took the trouble to inform the sellers that this was the highest offer they could expect.
In light of the advice, the couple sold the property and paid the realtor NIS 10,000 as a fee. However, things didn’t work out smoothly between the sellers and the buyer and a bitter dispute arose leading to the courts and tangentially required obtaining valuers’ opinions regarding the property. One can imagine their amazement when they were told the property was easily worth NIS 400,000 more than the price they had accepted. Enraged by this obviously bad advice, they sued the realtor.
Astonishingly, the realtor’s defense was that she didn’t have a license and thus was not bound to the regulations set out in the Realtors’ Act; i.e., she had no duty of care toward the sellers. What’s more, she said, she had never made out that she was a licensed valuer and had no training to make such evaluation. The money received from the sellers, she said, was not for acting as a realestate agent, but for representing the sellers before the local authorities on various issues.
Judge Oren Schwarz of Rishon Lezion didn’t see it that way. He deemed that the defendant’s activities were those of a realtor.
He also deemed that all the regulations stated in the Realtors’ Act applied to her activity, even though she wasn’t licensed. The judge compared the sellers’ lack of knowledge with the defendant’s, who was a resident of Kadima and who knew – or at least should’ve known – the value of such property.
The final result was that the court imposed compensation on the realtor, requiring her to pay the sellers the difference in price and to return the NIS 10,000 she had received.
israelaw@netvision.net.il
Dr. Haim Katz is a senior partner in a law firm with offices in Tel Aviv and Jerusalem specializing in real-estate, inheritance, trusts and family law. Sam Katz is a jurist living in Jerusalem.