When working with a new client in the property search process, a frequent point of discussion is understanding the fees for the realtor in Israel where both buyer and seller have agents.
This article will examine the workings of the agency system in Israel and compare it to other countries. When I explain the Israel system to clients they generally see it has some merit.
Israel’s System
In Israel, the buyer and seller each have their own designated agent, with a fee of 2 percent plus sales tax for each agent. The rationale is that each party has a representative advocating for their interests, which makes sense in theory. This allows the broker to offer you listings of other brokers, increasing your options and choices! However, when one agent represents both sides, which is permitted in Israel, this is not ideal, and removing this practice would make the system more representative.
U.S. System
In the United States, the selling broker typically charges a 5-6 percent commission, which is then split between the selling broker and the buying broker. The selling broker is responsible for coordinating this with the buying broker. There is currently some debate about the fairness of this arrangement, as the seller is effectively paying the buyer’s broker, potentially increasing the overall cost for the seller. This raises concerns as the buying broker is being paid by the other party.
England/Australia’s System
In England and Australia, the seller typically hires a broker and pays 1.5-2.5 percent commission. The selling broker is responsible for finding a buyer, although they may allow a buying agent to become involved and arrange a split commission. However, this is not common. As a result, there is usually only an agent on one side. While the seller pays less, buyers do not have the representation to negotiate the best deal for them.
In Australia, where the auction system is prevalent, the focus is on maximizing the seller’s profit. This is why some buyers in England and Australia choose to hire a “buyers advocate,” a separate agent or representative to represent their interests and negotiate the best deal for them. In some cases, it can be worth paying the extra 1.5-2.5 percent to ensure getting the best deal.
Conclusion
After examining all three systems, it is evident that each has its own advantages and disadvantages. However, upon further research, I believe that the system in Israel, where both sides have representation, is generally a sound system.
The only improvement that I would suggest is to restrict one agent from representing both sides, as it compromises the point of having separate representation for both parties.
This article is based on the opinions of CapitIL Real Estate CEO and Co-Founder Ben Levene. Ben Levene is a Jerusalem real estate expert with over 10 years of experience, specializing in helping Anglos purchase real estate in Israel. To start your Israel property search, contact Ben at +972-53-822-4336 or [email protected].
