"Understanding the Responsibilities of Israeli Real Estate Brokers: Case Study and Implications for Home Buyers"

This case raises questions regarding the legal obligations of a real estate broker to provide information to their clients. Can a broker rely solely on information provided by the sellers, or is it their responsibility to conduct independent investigations regarding the property's condition?

In this case brought before the Supreme Court, the sellers sold a 250-square-meter house to the buyers. After more than a year, the buyers stopped their payment installments, claiming construction irregularities that constituted a breach of the agreement. The selling family threatened to cancel the agreement, arguing that the asset was sold AS IS and thus that the buyers were the ones breaching the contract.

The disputes reached the district court, which determined tha

t indeed, the sellers breached their duty of disclosure regarding construction irregularities, allowing the buyers to cancel the sale agreement. However, despite this option, the buyers were not entitled to cease payments but only to withhold the amount required for rectifying the irregularities. The buyers appealed to the Supreme Court, but their appeal was rejected, and ultimately, the agreement was canceled.

The buyers also claimed that the transaction was not completed due to the broker. However, the broker argued that the transaction was completed, and he was not a party to the dispute between the parties.

The broker demanded to receive his brokerage fees, arguing that the buyers  should pay him 2% of the transaction amount, totaling 62,000 shekels plus VAT. The buyers argued that the broker was not entitled to brokerage fees because he took a one-sided stance in favor of the sellers, blatantly intervened in the sales agreement, and presented them with a misleading presentation that denied the existence of any construction irregularities and property registration issues.

The issues raised include whether a broker can rely on information received from the seller and whether the broker is liable for the information received from the seller.

Analysis

The court's decision adopts a narrow approach regarding the broker's responsibility for information provided to the buyers when relying on information received from the sellers. It distinguishes between information provided to the broker from the seller's initiative, where the broker is not obliged to verify its accuracy unless contradictory information is in the broker's possession, and information obtained by the broker's initiative to investigate the seller, for which the broker is expected to ask professional questions and attempt to find additional information such as open and public records.

In a previous Supreme Court ruling, the broker's obligation to check the property's land registration to ascertain essential facts such as the property's ownership and whether the property is encumbered with liens was established. However, in the present case, the court narrowed the broker's obligation to provide essential information to the buyers significantly. Nevertheless, providing information does not absolve buyers from consulting professionals. Therefore, further clarification may be necessary until a guiding decision is issued by the Supreme Court.

Recently, the Ministry of Justice published a draft of the Real Estate Brokers Regulations (Professional Ethics) 5784-2024. Once these regulations come into effect, it appears that the minister responsible for enforcing the law saw fit to significantly expand the scope of information that brokers must provide to their clients.

According to the recommendations of the Ministry of Justice, in response to numerous claims regarding the various pieces of information conveyed by real estate brokers to their clients, as well as to address concerns about the reliability of such information and to resolve resulting issues, it is proposed to define, within the framework of ethical principles, a uniform standard of basic services and information elements as a solution to difficulties faced by non-Hebrew-speaking immigrants or newcomers through brokers.

It is envisaged that the broker commits to providing within the scope of their services. It is proposed that the broker make reasonable efforts to obtain property information from the owner and convey it to the interested party in writing as part of a standardized questionnaire defined and published by the registrar.

Here are the pieces of information proposed to be required from brokers:

1. In all transactions: the surface of the property on the basis of official information (gross, net, and with indication of the source of official information), the existence of plans concerning the property and its immediate surroundings, including future plans, in accordance with information published by the planning authorities, defects as per the owner's declaration, the availability of the property, the status of "dangerous building", the state of rights on the property, identification of the property, specifications of the property, existing systems in the property, maintenance.

2. In sales transactions only: information appearing in the registry of properties and in the Condo documents.

The obligation to disclose essential information, including exclusive mediation or with the property agent, as well as the obligation to recommend necessary professional services in clear specific cases.

In conclusion, the case highlights the complexities surrounding the obligations and liabilities of real estate brokers in Israel. While the court's decision adopts a narrow interpretation of the broker's responsibility for information provided to buyers, it underscores the importance of transparency and diligence in real estate transactions. With the impending implementation of new regulations, there is anticipation for a more defined framework governing the conduct of brokers and the information they provide to clients, which will likely contribute to greater clarity and accountability in the real estate industry