Understanding the real estate agent’s commission agreement

Many homebuyers in Israel, in particular those from overseas who are unfamiliar with the local market, chose to work with real estate agents. Before viewing a property, buyers should be asked to sign a written services agreement, compulsory under Israeli law. An intermediary who does not make sure to do so will not be entitled to claim any brokerage fees.

The process of purchasing real estate in Israel differs in many ways from the customary ways of buying a home overseas. Working with real estate agents and paying commission on the buyers’ side is something that many foreign buyers, in particular those from the US, are not familiar with. The goal of this article is to help buyers understand what they are signing when presented with an agreement for real estate services, and the implications of signing such an agreement. When buyers do not understand Hebrew, an English version should be requested to read and sign. If unavailable, buyers are strongly advised to pass the Hebrew agreement to their attorney for review before signing.

What details should be included in the agreement?

The following six details should be clearly shown in the agreement:

  1. Agent’s fee — usually set between 1% and 2% of the transaction amount (or an amount equal to a month’s rent when renting the property for at least a year), plus VAT.
  2. Details of the property —information on each property that the realtor presents to the buyer, including registration details, address, description, floor number, number of rooms, parking spaces, storage rooms, etc.
  3. Price — the asking price for each property, and whether they are offered for sale and/or for rent.
  4. Agent’s fee — the exact rate of the agent’s commission, with VAT to be added.
  5. Agent’s details — name, Israeli ID number, and license number.  It is important to check that the agent’s license is valid — an intermediary without a valid license is not entitled to earn commission!
  6. Client information —  full name, and ID or passport numbers of each person.

What is the buyer agreeing to in the commission agreement?

The agreement generally states that the buyer (or renter) is not allowed to convey any information about the property to a third party without the agent’s knowledge, to circumvent the agent, or to negotiate directly with the property owners while hiding this information from the agent.

The fee is due only when a binding sale (or rental) agreement has been signed between the buyer (or renter) and the property owner. However, in order for the agent to be entitled to a commission, he must be an “effective party” whose actions lead to the closing of a transaction. This definition is legally complicated and differs from case to case.

Can buyers work with more than one agent?

Unless a buyer has given exclusivity to a particular intermediary, it is permissible to contact and work with a number of agents concurrently, without limitation. However, if a buyer has agreed to work exclusively with a particular agent (which is possible for up to six months), there is no leeway to work simultaneously with additional intermediaries, except with the coordination and consent of the exclusive agent.

Can a buyer see a property with an agent after seeing the same property and signing a commission agreement a year earlier but with a different agent?

The answer is not simple. It is important to understand why the purchase process did not progress throughout the year.  If after seeing the property initially, the buyer decided that it was not suitable and the agent did not make any contact since showing the property, now with renewed interest in the property the buyer may contact a different agent. However, it is strongly recommended to notify the second agent that the first agent presented the same property a year earlier and to request an indemnity letter that if sued by the first agent the second agent will finance the legal proceedings, and if obligated to pay the first agent, the second agent will also cover the full payment and any expenses.

If an agent shows a client plans for a new construction project, can the client contact the developer directly?

Generally speaking, there is no place to sign a commission agreement in this case since the agent is not showing a specific apartment that is for sale.  Remember that signing an agreement with an intermediary should only be made with clear details and an accurate description of the property in question. However, if the buyer signed an agreement with an agent that commission is due upon the purchase of any purchase in the project, then the buyer should inform the agent that he is communicating directly with the developer, and if a transaction goes through, the commission will be payable.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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