Apartment from a contractor or second-hand: differences that can cost tens of thousands of shekels
The payment schedule, index linkage, entry date, securities, and liability for defects vary between the two transactions; a new apartment provides legal protections but includes uncertainty and future costs, while second-hand allows viewing the property and requires careful verification of rights and the seller.
Purchasing an apartment from a contractor and purchasing a second-hand apartment ultimately lead to home ownership, but the path there differs in almost every detail. In a contractor deal, payments are usually spread over the construction period, which can reach two or three years, and the delivery date may change. In a second-hand deal, the process is shorter, usually three to nine months, the property is already standing, and the buyer can examine its condition, the environment, noise, and defects before signing.
The law limits the amounts a contractor is allowed to collect according to the progress of the work. The first payment is included in a 31% ceiling upon completion of the lower level, and subsequently, additional amounts are collected upon completion of the skeleton, cladding, interior works, and systems. In second-hand, the payment schedule is determined by legal milestones: signing and registration of a cautionary note, clearing the seller's mortgage, and handing over the key.
The contractor is allowed to collect an amount equal to at most 7% of the consideration before providing security. Any additional amount requires protection under the Sale Law, usually a bank guarantee. The guarantee is intended to return the buyer's money when the contractor is prevented from making the apartment available to him due to insolvency, attachment, or similar circumstances. The coverage concerns funds paid, while delays, defects, and gaps against the specification are handled through other channels.
Construction costs add a component that many buyers underestimate. In contracts from July 2022 onwards, one-fifth of the apartment price is exempt from linkage to the construction input index, and half of the remaining amount is subject to linkage. In practice, up to 40% of the transaction price is exposed to the index. In an apartment costing 2.2 million shekels, with 30 months of construction and an annual index increase of 3.7%, the addition may approach 50,000 shekels. The money comes from equity, so it is advisable to leave a margin for it in the budget.
The delivery date is also treated differently. In new contracts, the contractor has a grace month. When the delay drags on, the buyer is entitled to compensation from the date set in the contract:
An amount equivalent to the rent customary for a similar property in the first four months, 125% in the fifth to tenth months, and 150% from the 11th month.
A delay of seven months, in an apartment whose rent is estimated at 6,000 shekels, creates compensation of 46,500 shekels. The sale specification determines what the contractor committed to provide, and Form 4 allows occupancy and connection to infrastructure. At the time of delivery, it is recommended to document every defect in an orderly protocol. The inspection period varies according to the type of fault, from two years for flooring and carpentry to seven years for external cladding. Subsequently, a three-year warranty period begins.
In second-hand, the main protection comes from preliminary checks. A Tabu extract or certificate of rights must present the seller as the owner and reveal liens, attachments, and notes. When a mortgage exists, the payment for its clearance is transferred directly to the bank according to a letter of intent. It is also important to check for illegal construction, debts to the municipality, taxes, and betterment levies, and to leave funds in escrow until the approvals necessary for the transfer of rights are received.
