What to know about the Option to Purchase when buying property
As resale flats remain highly sought after in Singapore, many homebuyers could be new to the process of buying a property. If you have your eye on your next home, it is important to factor in the legal aspects of this transaction to close the deal smoothly.
By first engaging a reputable conveyancing lawyer to act for you, you can be more informed of the steps involved in the purchase. This may include negotiating the terms and conditions stipulated in the Option to Purchase (OTP) agreement to protect your interests as a buyer.
What is an Option to Purchase?
As there may be other prospective buyers pursuing the same property, the OTP contract reserves your rights to it for a given period of time. In accordance with the Law Society’s Conditions of Sales 2020, the OTP document legally binds the seller and buyer for the sale and purchase.
Note that while there is a standard form of OTP for Housing and Development Board (HDB) flats, this document can be revised in the case of private property transactions. As the agreement will be drafted by the seller’s lawyer, your conveyancing lawyer may analyse the terms and conditions stipulated and request any amendments.
What Should Be in the OTP Contract?
For starters, be sure to include personal details of the seller and buyer in the OTP agreement. This includes your full name, Identification Card (IC) number, contact information and registered addresses. The responsibilities of the seller and buyer will also need to be properly documented, which encompass the:
- Option Fee, including the option of a forfeit in the event the OTP is not exercised
- Option period
- Manner of exercising the OTP
Furthermore, do your due diligence to check through the details of the property in question which will generally cover:
- The address of the property
- Indication of floor or land area
- Sale price of the property
- Whether you are accepting the property in its existing condition, also referred to as the “as is where is” basis
- Whether the property will be sold with its furnishings. An inventory list will thus be required
- If you are allowed to inspect the property ahead of the date of completion
- If warranty is included when additions or alterations are carried out
Once both parties are fully satisfied with the terms, you can proceed to pay the Option Fee. In most cases for private property, the Option Fee will be 1% of the purchase price, which is negotiable. Some sellers may raise it higher to prevent last-minute backouts. For HDB resale flats, take note that you should be paying no more than $1,000.
Upon signing the OTP contract, the seller will be unable to back out of the sale or attempt to sell the property to other buyers during the option period. The duration of the option period will usually span between 14 days to 2 months for private properties and 21 days for HDB flats, including weekends and public holidays.
Make sure to have a copy of the OTP contract. Once you have decided on purchasing the property, you may then exercise the OTP conforming to the manner agreed upon in the contract.
What if You Change Your Mind About Buying the Property
Should you choose to back out during this period of consideration or fail to exercise the OTP on time, the seller has the right to forfeit the Option Fee unless stated otherwise.
On the other hand, where the seller withdraws from the deal, you will be able to get the Option Fee back. If, for any reason, the seller chose to sell the property to someone else during the option period, this can catch any buyer off guard, especially for those who had to secure bank loans in advance. In such cases, you may wish to take legal action against the seller. Your conveyancing lawyer will advise you on your best legal recourse depending on your situation.
Rely on the Expertise of a Conveyancing Lawyer
Before signing anything, do your due diligence to consult your trusted conveyancing lawyer so no stone goes unturned in your investment. To get your dream home in Singapore, don’t hesitate to get in touch with our team at Harry Elias for more information on the process of conveyancing and the relevant fees.
For more information, please contact our Business Development Manager, Ricky Soetikno, at [email protected].