עברית
How Escrow Deposits Protect Both Parties in Real Estate Deals
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September 2nd, 2024
We often encounter the questions: "What is an Escrow Deposit in Israeli real estate transactions"? and "What amount should be kept in escrow during a real estate transaction?"
Before answering, it's important to understand the purpose of this "escrow deposit" and its significance in the contractual relationship between the seller and the buyer in "second hand" real estate deals.
The escrow is a sum of money held in trust, usually by the seller's attorney, typically drawn from the final payment of the transaction that the buyer pays to the seller.
The purpose of the escrow is to ensure that the remaining mandatory payments owed by the seller related to the sale and maintenance of the property are covered. This includes property taxes, various debts and other expenses the seller is responsible for. The escrow facilitates the completion of the property registration in the buyer’s name at the Land Registry Office (Tabu) and with other relevant authorities.
To determine the appropriate amount for escrow, preliminary assessments of the seller's liabilities should be conducted, including:
- Capital Gains Tax Exposure: A thorough examination of the seller’s declarations regarding exemptions they may be eligible for.
- Betterment Levy Liability: In certain properties with potential for enhancement or additional construction (such as private houses, garden apartments, or penthouses), it’s advisable to seek a preliminary appraisal to avoid an unexpected payment demand from the local authority. This also applies to properties not included in the above, as general or local planning may impose levy liability as well.
- Pending Legal Proceedings: These may exist against the seller or the property, even if they are not listed in the Land Registry. In such cases, payments may be needed to clear these proceedings and "cleanse" the property, ensuring a smooth transfer of rights to the buyer without additional financial obligations.
- Debts on the Property: This includes outstanding payments for property taxes, water, electricity, gas, etc.
- Tenant Occupancy: In some cases, the possibility of a tenant not vacating the property and the associated eviction costs should be considered in advance.
- Additional Liabilities: Other liabilities that may arise depending on the specific circumstances of the transaction.
The escrow amount is influenced by various factors and should reflect a realistic assessment of the seller’s maximum exposure to mandatory payments, taxes, fees, and any unexpected costs that may arise during the transfer of property rights and possession to the buyer.
It's important to note that the escrow amount is subject to negotiation between the parties before signing the sale agreement. Incorrect determination of this amount could delay or even halt the completion of the real estate transaction in the buyer's name.
Therefore, the correct answer to the question "What amount should be kept in escrow during a real estate transaction?" is that there is no "standard" amount to be specified in the sale agreement. Each case must be evaluated individually with careful and thorough examination of the property and seller’s circumstances before determining the escrow amount.
Have more questions? Feel free to reach out with any professional inquiries, and we will be happy to assist.
*The information provided above does not constitute legal advice, an opinion, or a substitute for personalized legal consultation with an attorney.*
We often encounter the questions: "What is an Escrow Deposit in Israeli real estate transactions"? and "What amount should be kept in escrow during a real estate transaction?"
Before answering, it's important to understand the purpose of this "escrow deposit" and its significance in the contractual relationship between the seller and the buyer in "second hand" real estate deals.
The escrow is a sum of money held in trust, usually by the seller's attorney, typically drawn from the final payment of the transaction that the buyer pays to the seller.
The purpose of the escrow is to ensure that the remaining mandatory payments owed by the seller related to the sale and maintenance of the property are covered. This includes property taxes, various debts and other expenses the seller is responsible for. The escrow facilitates the completion of the property registration in the buyer’s name at the Land Registry Office (Tabu) and with other relevant authorities.
To determine the appropriate amount for escrow, preliminary assessments of the seller's liabilities should be conducted, including:
- Capital Gains Tax Exposure: A thorough examination of the seller’s declarations regarding exemptions they may be eligible for.
- Betterment Levy Liability: In certain properties with potential for enhancement or additional construction (such as private houses, garden apartments, or penthouses), it’s advisable to seek a preliminary appraisal to avoid an unexpected payment demand from the local authority. This also applies to properties not included in the above, as general or local planning may impose levy liability as well.
- Pending Legal Proceedings: These may exist against the seller or the property, even if they are not listed in the Land Registry. In such cases, payments may be needed to clear these proceedings and "cleanse" the property, ensuring a smooth transfer of rights to the buyer without additional financial obligations.
- Debts on the Property: This includes outstanding payments for property taxes, water, electricity, gas, etc.
- Tenant Occupancy: In some cases, the possibility of a tenant not vacating the property and the associated eviction costs should be considered in advance.
- Additional Liabilities: Other liabilities that may arise depending on the specific circumstances of the transaction.
The escrow amount is influenced by various factors and should reflect a realistic assessment of the seller’s maximum exposure to mandatory payments, taxes, fees, and any unexpected costs that may arise during the transfer of property rights and possession to the buyer.
It's important to note that the escrow amount is subject to negotiation between the parties before signing the sale agreement. Incorrect determination of this amount could delay or even halt the completion of the real estate transaction in the buyer's name.
Therefore, the correct answer to the question "What amount should be kept in escrow during a real estate transaction?" is that there is no "standard" amount to be specified in the sale agreement. Each case must be evaluated individually with careful and thorough examination of the property and seller’s circumstances before determining the escrow amount.
Have more questions? Feel free to reach out with any professional inquiries, and we will be happy to assist.
*The information provided above does not constitute legal advice, an opinion, or a substitute for personalized legal consultation with an attorney.*
