Canceling a Home Deal in Israel Can Cost Buyers Quarter-Million Shekels

Thousands of Israelis who signed deals for new apartments are now facing significant financial penalties when they are unable to complete the purchase, primarily due to rising mortgage costs and difficulty selling their existing homes. As of August, 1,821 deals with contractors signed between 2023 and 2025 have been canceled, a 41% increase since January, according to the Ministry of Finance's chief economist. Cancellation rates are particularly high in Beersheba and Tiberias at 3.4%, and have reached 7% for 2023 deals in the southern region.

When a buyer cancels a deal, they typically forfeit a "agreed compensation" amount stipulated in the contract, usually 10% to 15% of the property's value. For a 2.2 million shekel apartment with a 10% penalty, the buyer loses 220,000 shekels and receives the remaining 220,000 shekels back. If the penalty is 15%, the loss is 330,000 shekels, leaving only 110,000 shekels returned. Additional costs for the buyer can include legal fees, brokerage commissions, and mortgage fees, amounting to an estimated 15,000 to 30,000 shekels. If payments were already delayed, late interest charges can add tens of thousands more.

However, buyers may be eligible for a refund of purchase tax and VAT, provided the cancellation is genuine and properly reported. The law also allows courts to reduce agreed compensation if it's deemed disproportionate to the actual damage suffered by the contractor. In cases where a contractor can easily resell the apartment at a similar price, they may struggle to prove a 15% loss, leading many to settle for 5% to 7.5% to avoid litigation.

An alternative to cancellation is assigning the contract to another buyer, which usually incurs a small commission for the contractor, or negotiating a payment deferral. Given the large inventory of unsold apartments, contractors often prefer to postpone a deal rather than face a cancellation. The total cost of canceling a typical 2.2 million shekel apartment deal can range from 240,000 to 360,000 shekels before late interest, a sum many buyers overlooked when signing seemingly risk-free deals.