Option to Purchase (OTP) – 12 Important Points you need to know

Option to Purchase (OTP) is a legal agreement between the buyer and the seller to buy a residential property.

It is when the buyer and the seller agree to transfer property from the seller’s name to the buyer’s name on a mutually agreed price to be paid within a time period.

The buyer has to pay an upfront amount to show their commitment to buy and get full ownership of it right after paying the remaining amount.

This advance amount is also known as the option fee. This agreement between the buyer and seller is called the option to-purchase agreement.

If the buyer lets the OTP lapse or chooses not to pay the remaining amount within the option period, they forfeit the option fee already paid.

After selecting the desired unit, the buyer and seller will then decide on a mutually agreeable price, and the seller will then issue an Option to Purchase (OTP) to the buyer.

The OTP is a legal contract signed between the buyer and the seller which basically gives the buyer the exclusive rights to purchase the property from the seller.

In other words, the property is “reserved” once the buyer pays the option fee as a form of consideration.

The seller will not be able to grant another option and will be unable to sell the property to another party during the agreed time frame stated on the OTP.

The time frame stated on the OTP also known as the Option Period gives some time for both the buyer and the seller to consider.

Bear in mind that as a buyer, you’re not obligated to buy the property from the seller after signing the Option to Purchase (OTP).

Rather, you can still consider whether or not you want to purchase the property with your options open. It is only binding for the seller.

The Option to Purchase (OTP) agreement typically involves these essential elements:

An agreed sum is negotiated between the Buyer and the Seller before the seller grants the Option to Purchase (OTP). The Option Fee is typically 1% of the property purchase price for private properties and not more than $1,000 for an HDB Resale flat. 

Typically 14 days. However, this duration is negotiable between the Buyer and the Seller if the buyer requires an extension of time. It can be extended up to 2 months. For HDB Resale flats, this will be 21 calendar days including Saturday, Sunday, and Public Holidays. 

Includes the Purchase Price, Floor area, and Address. 

Includes the Full names, NRIC, Contact numbers, and Addresses of both parties.

In the Option to Purchase (OTP) agreement, it should state whether or not the Option Fee will be forfeited. Typically, there will be a condition stating that the Option Fee will be forfeited so as to protect the Seller’s interest. 

More often than not, the property will be sold with vacant possession. But if the property is sold tenanted, the Tenancy Agreement will be transferred from the seller to the buyer. The buyer then becomes the new landlord after the sale’s completion.

If there are any doubts or concerns with the information of terms stated in the Option to Purchase, be sure to clarify with your agent or seek legal advice if needed. 

To get better clarity on how the Option to Purchase (OTP) is presented, you can refer to the below links for reference. 

OTP for Private Property from CEA (Council for Estate Agencies)

OTP for HDB Resale where both Seller and Buyer must use the prescribed agreement by HDB

The Option to Purchase (OTP) is signed when the seller agrees to sell the flat at an agreed price within a decided time.

A written agreement, also known as the Option to Purchase agreement is then signed and holds both parties responsible for this transaction.

The seller is bound to not offer the property to another buyer for sale, and the buyer is obliged to pay the remaining option fee under this agreement. 

Both parties have to use a form of contract prescribed by HDB to register an OTP for the transaction.

Contracts other than those defined by HDB or any subsequent/supplementary agreements related to that specific property’s sale or purchase are not valid under the Housing and Development Act.

HDB-prescribed OTP forms can be downloaded from the HDB portal, and the buyer or seller should only print one copy of the downloaded form as each record has a unique identifying serial number.

Both parties have to provide that number to register for an OTP application to HDB.

Both parties have to read and understand the Terms and Conditions of Resale carefully before signing the contract.

The Option to Purchase (OTP) agreement contains all the necessary information detailing the sale of the property:

• Option date
• Address of flat
• Selling Price Option fee (between $1 to $1,000)
• Option Period (usually OTP expires after 21 calendar days from the day of agreement)
• Buyers’ and sellers’ names and their NRIC numbers
• All sellers must sign the OTP contract
• The OTP must be signed by a witness (the seller’s salesperson, Singapore Permanent Resident, or any Singapore Citizen who is 21 years old or older and is not involved in the resale transaction)

During this option period, the seller cannot exercise the option to purchase the same property for another buyer until the already issued OTP passes its option period. 

Buyers have to use this period and look into property rates and file a request for flat valuation to HDB with an OTP reference number to check if they have agreed on the right price to buy the flat.

HDB will allocate a valuation agent to check the market value of the flat.

The agent will then ask the seller to allow him to visit the flat for the valuation of the property. The seller has to grant him access within 3 days of the request being made.

The buyer usually gets a valuation within 10 days of the request being made. The valuation fee is S100 plus Taxes, and the valuation for a property is valid for 3 months after the issuance of a valuation report. 

Buyers have to pay an exercising fee (equal to or less than $5000) for a flat to exercise OTP. If the buyer does not want to exercise the OTP, they can simply let it lapse.

If you exercise Option to Purchase (OTP), you and the seller have to provide the following:

• If a loan is involved, then a valid Letter of Offer must be provided by the buyer when they make use of the Option to Purchase.
• Option to Purchase
• Exercise Fee
• Submit the resale application to HDB from the date of exercising the OTP that the buyer and the seller have agreed upon.
• All buyers must sign the “ACCEPTANCE” section of the OTP.
• A witness must sign the OTP.

When buying an HDB resale flat, the buyer and seller must follow the rules and regulations defined in the Housing and Development Act.

HDB has a form that already mentions the above that has to be used for the HDB Option to purchase to be a valid agreement.

No subsidiary agreement is valid or any other agreement which inflated or deflated the price of the flat involved in a transaction.   

The OTP agreement is prepared by the seller’s lawyer, and the buyer or buyer’s lawyer must review it and ask for or recommend changes to protect the buyer.

The buyer shouldn’t assume that the terms in the OTP are “all the same” and sign it without consulting with a lawyer.

As HDB is not directly involved in private property resale, the buyer has to protect himself.

If a buyer decides to NOT exercise the Option to Purchase (OTP) within the Option Period, the Option Fee will then be forfeited.

Unless stated in the document, the seller will get to keep the Option Fee.

After the Option Period has ended, the seller is allowed to put up the property for sale again.

Sellers can legally retain the option fee if they don’t agree to return the option fee at the time of the Option to Purchase agreement.

If the seller backs out of the deal and “cancels” the OTP, he’ll have to refund the Option Fee to the buyer.

The HDB Option Fee and Exercise Fee are very important when it comes to buying a resale flat from the HDB. 

Now it is high time to look into the details of these fees and understand how they impact the transaction:

The HDB Option Fee is a deposit paid by the buyer to the seller when the former exercises the Option to Purchase or OTP.

It acts as a token deposit to show the buyer’s willingness to go on with the purchase. The Option Fee for HDB resale flats is usually small, and cannot exceed $1,000 as per HDB rules and regulations.

This fee is non-refundable and the buyer loses it if he or she declines to complete the purchase after exercising the OTP.

For the buyer to exercise the OTP, the buyer is supposed to pay an Exercise Fee to effect the transaction. This fee should not exceed $4,000 between the buyer and the seller.

The Exercise Fee applicable for HDB resale flats may differ in some cases but in any case, it cannot exceed a specific amount so that the buyers do not have to pay much upfront for the flats.

Exercising the OTP for private property follows a similar process but may have different fee structures compared to HDB transactions.

Private property transactions often include higher Option Fees and Exercise Fees because of the characteristics of the properties and market conditions.

The OTP agreement can contain specific conditions under which the buyer can exercise the OTP and the financial obligations for that purpose so it is important to read the OTP agreement carefully.

In the case of HDB properties, the exercising of the OTP entails compliance with the regulations set by HDB.

It is the responsibility of the buyer to ensure that he or she has the adequate amount of money to make both the Option Fee and Exercise Fee as agreed upon within the set time.

If this is not done it may lead to the cancellation of the Option Fee and other legal repercussions.

Buyers should seek advice from their housing agents or lawyers to know the consequences of opting for the OTP in HDB flats, financially.

The HDB Option Fee and Exercise Fee, together with the procedure of exercising the OTP in the sale of both private property and HDB resale flats are of great significance.

Buyers need to be aware of these costs and what is expected of them to facilitate a smooth and successful property purchase.