Introduction

Until enactment of the Real Estate Broker Law - 1996 (the law), uncertainty ruled the real estate brokerage market. This law, which went into effect on the 1st of April 1997, settled numerous issues involving real estate brokerage activities, some of which will be briefly discussed below.

Real Estate Broker Licensing

The law establishes that only those in possession of an appropriate license are entitled to work as real estate brokers. Those who worked as brokers prior to 1997, and are under the age of 60, are given a waiver to continue to work without a license for two years. For those who worked as brokers prior to 1997, and are over the age of 60, the law provides a possibility to exempt them from the license requirements in special circumstances.

To receive a license to work as a real estate broker, all of the following conditions must be met:

1.Israeli citizen (or foreign resident with a legal permit to work in Israel)

2.Over the age of 18

3.Not bankrupt

4.Not convicted of a crime of moral turpitude in the five years prior to submitting a request for a license.
5.If sentenced to prison, completed serving the sentence 3 years prior to submitting a request for a license.

6.Successfully passed the test for receipt of a Real Estate license.

We can see from the above that applicants for a Real Estate license, in addition to all the other requirements, must pass a professional examination, which will result in a greater level of knowledge for the broker handling real estate transactions.

A clients signature on an order is mandatory!
Section 9 of the law establishes that a real estate broker will not be entitled to a broker fee unless the clients handwritten signature is affixed to the order to execute a real estate transaction.

This section represents a true reform, in that it specifically instructs that an oral agreement to conduct a brokerage transaction will not entitle the broker to a fee. This section is designed to reduce the great number of cases involving differences of opinion between the broker and the client regarding the actual order for broker activity, and the brokers actual role as the effective factor in bringing about the participation of the parties in a binding agreement.

The Broker Fee

The law does not establish a minimum or maximum broker fee. The parties are entitled to set an agreed rate for the fee. It should be noted that the following rates are currently customary for broker fees:

2% + VAT for the sale / purchase of real property.

The equivalent of the monthly rent + VAT for the annual rental of a residence.

A broker who acted pursuant to a license (or temporary waiver) and received a signed order by a client, and who is the effective party in bringing about the participation of the same client in a binding agreement, is entitled to a brokerage fee.

Brokers Obligation of Reliability and Caution

The law is not satisfied with only obligating the broker to act with reliability and with fairness, and to deliver to the client all relevant information about the property involved in the transaction. It also requires the broker to act in such a way as to receive information about the property involved in the transaction; i.e., the broker is not only a medium for transferring information, but is also obligated to actively obtain information relevant to the transaction.

Prohibition against Legal Activity

The law prohibits the broker from preparing or even from assisting in the preparation of legal-type documents (for example: Memorandum of Understanding or Sales Agreement). The broker likewise cannot represent a client in negotiations leading to the preparation of such an agreement.

Punishment for Broker Violations

In addition to the sanction of disentitlement to a brokerage fee in the absence of compliance with provisions of the law, a broker who does not perform an obligation required by the law is liable to criminal sanctions of one year in prison and a substantial fine.