Buyers beware in Israel’s booming housing market

In June 2021, a 3.5-room apartment on Shlomo Hamelekh Street in Tel Aviv was put on the market for NIS 4.25 million. Within a short time, several offers were submitted and the sellers agreed a deal with one of the buyers. The drafting of a sale agreement began. During the process, however, the sellers had a change of heart and withdrew from the deal. They preferred to wait and take advantage of the continuing price increases and a few months later the deal was closed at a price of NIS 4.5 million – NIS 250,000 above their initial expectation. It is not known what caused the sellers to back out of the initial deal – whether it was the booming market, the general atmosphere or perhaps they heard that an apartment similar to theirs had been sold at a higher price. But in a sellers market, this case is not especially unusual and is not restricted just to Tel Aviv. Real estate agents that “Globes” spoke to said this case was not at all uncommon.

This situation applies to both apartments and houses. For example, those who follow the flourishing housing market in villages (moshavim) on the inland plain see sale ads that are updated every few days due to high demand. For example, a lot for construction that was first recently marketed on a village near Rehovot for NIS 3.3 million, closed at a price of NIS 4 million.

R., who has been searching for a home in the area for about a year, talks about a house that was initially marketed for NIS 5.1 million and gradually increased until the price reached NIS 7 million. When she saw a house that was being advertised for NIS 6.2 million, she quickly arranged with the owner to see it. An hour before she arrived, she received a call from the owner, informing her that the price had risen by NIS 300,000, and asking if she still wanted to see the house.

“De facto increase is higher than the data”

In the first 10 months of 2021, 44,000 new apartments were sold, 8.6% up from all of 2020, 33% up from 2019 and double the number of homes sold in 2018. Housing prices have risen 10.6% over the past 12 months, according to the Central Bureau of Statistics.

Keller Williams Israel CEO Amos Naim insists that the data does not tell the entire story and that the de facto price increase in some places has reached 25% over the past year and in some places even 50%. “We saw an apartment that sold within an hour and a half and there was no need to advertise. Deals are being closed faster. Before Covid, it took 90 days, today deals take a week or two, sometimes just two or three days. Our revenue has grown by 80% this year, and the number of transactions by 50%.”

In this situation, sellers are aware that prices are constantly being revised upwards and are afraid to miss the opportunity to maximize the value of their property.

Israeli realtors told “Globes” that they sometimes feel frustrated when a deal breaks down after they have worked hard on them, and even though they felt that the seller was satisfied with the agreed price. Sometimes the sellers pullout of the deal even in cases where the buyers offer a higher price than the price at which the property first went onto the market. Another deal that broke down during the signing of the contract involved the sale of a property in Givatayim, an 80 square meter apartment, which had not been renovated since its construction in 1967. Mor Properties Tzach Ben-Basat, who handled the property, recalled that the seller began marketing the apartment for NIS 2.4 million and began receiving calls.

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“After a month of work and about 15 buyers who saw the property, an offer of NIS 2.22 million was received. The property was rented and coordinating the deal was uncomfortable. The buyer had a good grasp of what could be done. He was an architect by profession and saw exactly what he could do to improve the apartment.

“We forwarded the quote to the property owners, who declined the offer. I went back to the buyer and told him that we need to improve the offer and make a better bid. We raised the price to NIS 2.315 million and the property owners thought about the offer and said they agreed to the price – if they continue to receive the rent from the tenants for the period of time he had left, about eight months – NIS 4,200 per month. I forwarded the counter-offer to the buyer, there was agreement and we moved forward.

“The details of the buyer’s lawyer were passed on and the lawyers got in touch with each other and they moved ahead drawing up contracts. A mortgage consultant began working, the lawyers were working and funds were transferred from account to account,” said Ben-Basat.

The draft contract was moving towards signing. But two days before the signing, the seller decided to raise the price to NIS 2.75 million, and the buyer, who could not meet the price, had drop out.

Another case from just the last week involved a couple who wanted to sell their four-room apartment in Sheshet Yamim Street in Bat Yam and buy a better apartment.

Keller Williams Bat Yam franchisee Haim Doer said, “We marketed the apartment for NIS 1.89 million and realized that the sellers were willing to close for NIS 1.85 million. After about two months of marketing, a couple arrived who offered NIS 1.87 million. The sellers agreed, we passed the matter on to the lawyers, and the seller then said she wanted a little more time to discuss things and she said she would give the final ok in a day. “The next day she told us, ‘Look it’s been two months since we advertised, my son said that now the apartment is already worth NIS 1.95 million shekels. I told her, ‘With all due respect to your son, we started at a high marketing price anyway, you won’t get NIS 1.95 million. We didn’t convince her. She said: ‘So I’m not selling, I’m waiting. The market goes up every day, and if I wait a little longer it’ll be NIS 2 million.”

“People now have new dreams.”

Jerusalem-based Zimuki Real Estate manager Daniel Buzaglo has been handling a lot with building rights for three housing units that has been up for sale for “a good few years” at a price of NIS 8.5 million. “We managed to organize a group of three buyers from abroad for NIS 8.3 million, and between Saturday night and Sunday, the seller announced that he was canceling the deal, even after the people had transferred funds to Israel and there was written agreement with the outline details of the transaction. Understanding and concerned that he would be sued, he came back to the talks and said that he was willing to sell for NIS 8.5 million. They were only prepared to do this deal if they received better payment terms – after all, it was a lot that they could only realize after about two years when they would receive the building permit. He disagreed and they weren’t prepared to add a single shekel. They felt cheated and lost faith in him. I explained to him: you were on the market for four years, and you only got the price because reality caught up with your fantasy. But people now have a new dream.”

Another case that Buzaglo encountered was a four-room apartment in Ramat Sharet in Jerusalem. The asking price was NIS 2.8 million, and a buyer who was willing to pay NIS 2.7 million arrived. Buzaglo said, “I got a call from the woman, who tells me, ‘According to the headlines in the papers, prices are only going up, you’re going to put it up for sale for NIS 3 million. I told her, the headlines that you see in the papers don’t refer to what has happened overnight. The prices in the market already reflect the increases. You won’t get any more. The buyer did not agree to raise the price. Sellers don’t realize they’re asking for more than the market is asking for.”

Sellers are often in a bind because they are looking to buy a bigger or better apartment and they recognize that at the same time as the sale, the prices of the properties they are looking to buy are also rising sharply, and the price they hoped to receive for the property already belonging to them might no longer be enough to upgrade to their satisfaction.

Amos Naim observed that the crazy increase in prices in recent months has certainly taken its toll on sellers, who see prices go up and want more. ‘What they don’t realise is that the price of the apartment they’re going to buy will continue to jump within the same market.”

Holon-based Alon Properties owner Alon Moshe provided such an example. “I marketed a penthouse on Ehud Manor Street in Holon, on the 14th floor, for NIS 3.85 million. The sellers still hadn’t bought an apartment and were looking for an apartment at the same time. They received an offer of NIS 3.74 million and were satisfied, shook hands. We got to a draft contract and the lawyer transferred money to the other party. Suddenly we started to see that the seller’s side was foot dragging. We asked him what was going on, and he said, ‘Listen, I’m not selling, I don’t know what I can buy for that amount. If he wants to buy, I want another NIS 100,000 now.’ He canceled the deal and I stopped marketing the apartment for him because I realized he hadn’t made up his mind. Now he sold the apartment for NIS 3.9 million. This is something that happens a lot, especially with the price frenzy of the last six months.”

With the sellers of Moshe and Ben-Basat, the deals collapsed, but sometimes the parties can be persuaded to reach a compromise. “Either you manage to raise the price or find another buyer to agree,” Naim said. “Sometimes the buyer is also willing to understand that this is the case, depending on how enthusiastic he is about the specific apartment. Or the seller comes to his senses and says he doesn’t want to lose a deal.”

Is it even legal to cancel a deal at this point? Adv. Maya Zisser, a partner in the real estate department at the Barnea Jaffa Lande law firm, explained that it is acceptable during the negotiations on the sale contract, and talks on agreement on the price of the apartment and the terms of payment and handover dates, to withdraw from the deal without it being considered bad faith, as long as agreements on these points have not actually been signed. However, a recent ruling by the Tel Aviv District Court could change this reality. The court ruled that a seller who agreed a price and terms of payment in an email to the buyer’s lawyer is legally bound even though a contract had not been signed. It remains to be seen whether other buyers take legal action in the wake of this ruling.

Published by Globes, Israel business news – en.globes.co.il – on January 17, 2022.

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