On the 1st of April 1997 came into effect the Real Estate Broker’s Law 5756 – 1996. According to this law “real estate brokerage” is the meeting between two or more parties, for the purpose of their engagement in a real estate rights transaction (a right in real estate is a right whether it is registered or not). (Real estate is: an apartment / building / land / industrial structure etc.)

The license provisions to engage in the profession of Real Estate Broker in Israel

Who is entitled to engage in the brokerage profession?

Whoever successfully passed the examination towards a real estate brokerage license and holds a valid license, issued by the Real Estate Brokers Registrar at the Ministry of Justice, or whoever is exempted from an examination, according to the rules enumerated in the law. Senior brokers who are citizens or residents of the State of Israel and who engaged in real estate brokerage at the eve of the passing of the law (on 1.4.97), are entitled to engage in the profession without a license, up to two years from the enactment of the law. The Minister of Justice is the minister appointed to perform the law and he appointed a Broker’s Registrar whose role it is to issue licenses to real estate brokers.

Who is entitled to take the exam to receive the license?

Entitled is whoever is a citizen of Israel or a resident, or a foreign resident who was granted permit to legally work in Israel. Not permitted to work as a broker is whoever is under 18 years of age or became bankrupt. And whoever was not convicted of a flagrant offence during the five years prior to submitting the application, and if served a prison sentence, at least 3 years have passed from the date he completed his service until the submission of the application.

The duty to sign a real estate brokerage service order form

This clause constitutes a significant reform and it is intended to arrange the relations between the broker and the customer:

A broker shall not be entitled to his brokerage fee, unless he possesses a brokerage license and the customer has signed the written order to perform the act of brokerage. The brokerage action by itself is not sufficient, but rather there has to be a written order, which will include all the details required by the law. A brokerage service order must include:

§          The name of the broker and the client and their identification numbers

§          The type of transaction (sale / purchase / rent / lease)

§          description of the property which is the subject of the brokerage activity

§          the asked or offered price (approximate)

§          the agreed upon amount of the brokerage fee – which may be stated in percentages of the transaction price

§          And also whether the agreed price included V.A.T.

The Beer-Sheva District Court, recently determined clause appearing in a sale contract of an apartment, in which there was an undertaking by the sellers to pay brokerage fees, does not meet the requirements of clause 9 of the Broker’s Law, and cannot serve as a substitute for a written order which is an initial and preliminary stage of the engagement between the broker and the client. Therefore, the Court has declined the appeal of the broker for his brokerage fee in the absence of an additional order. It is apparent from this that whereas the fundamental written requirements, which in other law addresses both parties equally, here it is leaning towards the side of the sale contract and not that of the broker.

Exclusive brokerage services

It is permitted that a broker and a client agree between them on exclusive brokerage services, providing the client signs a brokerage service order in which it is specifically stated that this is an exclusive brokerage service order. The form must include the exclusivity period (the exclusivity period is not limited and it is subject to negotiations between the broker and the client). If the exclusivity period is not mentioned on the form, then in the matter of the sale of real estate property which is only an apartment, the period shall be seen as terminated at the end of 30 days from the date the client has signed the exclusivity order form.

The entitlement of the broker for the brokerage fee

The real estate broker holding a license (or the one which is legally exempted from a license), is entitled to receive a brokerage fee for his work, and providing that he was the “instrumental cause” which eventually brought upon the binding agreement between the parties. According to the court’s ruling, the broker being an “instrumental cause” is not conditional on the amount of the broker’s work. It will be sufficient, for instance, that it was he who brought to the knowledge of customers the real estate, the details of the property and its location, and following this, finally a transaction for the real estate deal was signed.

The rate of the brokerage fee

The law does not determine the rate of the brokerage fee. Brokerage fee is a matter of negotiations between the broker and his client. This means that there is no set commission or minimum or maximum commission stated in the law, and therefore, in cases were the rate of the commission is not stated, the parties shall act as customary until now – 2% of the inclusive sale/purchase price of the property plus V.A.T.:

A binding agreement for the rental of a property:
For a period of only one year – the rent for one month + V.A.T.
For a period shorter than one year – 10% of the total rent payments + V.A.T
For a period in excess of one year – 5% of the total rent for the rental period, including its extension, up to three years + V.A.T

The time to pay the brokerage fee

Brokerage fees shall be paid to the broker immediately upon the signature of a binding agreement between the parties (a binding agreement is a memorandum of understanding or a contract).
It is necessary to pay attention: The payment duty to the broker, according to the Broker’s Law, is upon the signing of a binding agreement without any connection to the performance or finalization of the transaction, so that if the transaction was not executed after the signature of the agreement, the obligation to pay the broker still exists since he performed his share.

The broker’s duty

The broker must obtain from the client most of the direct and indirect data, so that he can offer him the most appropriate property. The broker will also exhibit to the client the pro and con arguments regarding his choice while providing him essential information relating to the intended property. The broker will assist the client also on subjects of obtaining financing for the purchase, if he is asked to do so. As a general rule, the broker must act with decency and trust towards the client, and guide him with the utmost professionalism. At the same time, the buyer of the property must obtain information regarding the building and consult an engineer regarding the structure and a lawyer regarding rights and the signing of an agreement etc.

Prohibition of legal activities

A memorandum of understanding and/or a contract are legal instruments and it is recommended that the buyer and seller be represented by lawyers (according to Israeli law the same lawyer may represent the buyer and the seller and he has a fiduciary obligation to both of them)

Two Brokers

If two brokers have given the same client the same address and a transaction was closed, the one that was the “efficient factor” of the two is the one who will get the brokerage fee.

An agreement that does not materialize

When an agreement does not materialize for various reasons (for example problems between the seller and the buyer) even then the broker is entitled to receive his brokerage fee since he has performed his share. From the moment a memorandum of understanding or a contract was signed between the seller and the buyer, the broker completed his work and he is entitled to the brokerage fee. Meaning; that even if something went wrong in the selling transaction after the signature of the contract, the broker is entitled to his fee.

The rules regarding memoranda of understanding: also a memorandum of understanding is recognized by the courts as a contract according to the Contracts Law, and it can be binding and as such the parties will be obligated to pay the brokerage fee even if at the end a real contract is not signed.

Amendment to the Brokers Law – December 2004

Beginning with December 2004, real estate brokers who will receive from the property’s seller, exclusivity to sell the property, will be obligated to perform at least two marketing activities regarding the property’s sale.

The rule deals with two activities, from among the following:

1. Advertising in a daily newspaper the sale of the property,

2. Advertising in a local newspaper or a newspaper directed to a certain segment of the population at the client’s choice,

3. Advertising by posting a sign on the property or on a public bulletin board,

4. Advertising among a certain customers audience appearing in the broker’s reservoir,

5. Inviting potential buyers or other brokers to visit the property,

6. Inviting, at least five other brokers, who are active in the settlement where the property is located to cooperate for the purpose of the sale,

7. Or any marketing activity agreed upon by the parties.

 (It is possible that the addendum will be changed, so that the advertising will be done in only one daily paper rather than two)

Penalties

A broker, who did not act according to the directives of the law, is subject to the penalties determined by the Brokers Law, the penal code, and the consumer protection act, such as imprisonment and/or revoking/suspension of the license etc.

For the first time offences against the customer by brokers who sinned are punishable. The penalties include fines of up to 200 thousand Shekels, actual imprisonment of up to one year, the loss of the license for a limited period or eternally.  A registrar was appointed responsible for the licenses and the examinations.