Foreigner's guide to property market: Commission explained

Unlike many places where the seller pays the total real estate commission, in Israel, the buyer and seller each pay their own commissions.

311_moshave home (photo credit: Courtesy)
311_moshave home
(photo credit: Courtesy)
The Israel Real Estate Law of 1996
Since 1996, real estate agents in Israel are required by law to be licensed by the Justice Ministry. The real estate agent law defines the obligations and the areas of responsibility for a real estate agent in Israel. A licensed agent can legally represent buyers, sellers or both in property transactions. Real estate agents in Israel are not allowed to draft sale or rental agreements, that work is reserved for attorneys.
The predominant rate of commission charged by a real estate agent in Israel is two percent. The 2% commission amount is not dictated by law, but is the most prevalent rate currently charged. On rentals, it is pretty typical to pay a commission at a rate that equals one month's rent on a twelve month rental agreement. 
In addition to the commission your real estate agent charges, they are required by law to also collect VAT (Value Added Tax). In 2011, the VAT rate is 16%. In other words, the agent would be collecting their commission plus an additional 16% of the commission that gets passed on to the government.
The request for real estate brokerage services
The Israel Real Estate Law established in 1996, requires that a form with some basic information regarding the details of a real estate transaction be documented in writing and signed by the client who is being represented by a real estate agent in Israel, if the agent wants to get paid for his or her services.
The "Request For Real Estate Brokerage Services" is the form typically used by real estate agents in Israel to document that they assisted a buyer or seller with a real estate transaction.  The same form is used for buyers and sellers, landlords and tenants. The form requires certain basic information about the client, the specific property or properties that would fall under the agreement, the rate of commission to be paid and obviously identifies the company and agent representing the party or parties.
If you are looking to rent or buy a property in Israel, or sell or lease a property that you own, and you intend to use a real estate agent, then expect to sign the "Request for Real Estate Services" form. Real estate agents will typically require that you sign this form before they show you a property or properties.
A few things to be aware of in general when dealing with the "Request for Real Estate Services" form:
- Do not sign an agreement with two different agents regarding the same property or you will have obligated yourself to pay two commissions. 
- Although a 2% commission rate is the predominant rate currently charged in Israel, commissions are negotiable. 
- The Real Estate Commission becomes due and payable upon the signing of a "binding agreement" between you and the other party. 
Lyle Plocher is the Director of Buy Property In Israel and can be reached by email at [email protected]