What is the Offer to Purchase?
The Offer to Purchase serves as a formal letter through which the buyer expresses genuine interest in acquiring the property. It is important to note that unlike the legally binding Option to Purchase (OTP), the Offer does not hold legal obligations.
Recommended article: Offer to Purchase vs Option to Purchase: What’s the difference?
How does the Offer to Purchase work?
The Offer to Purchase, typically prepared by the buyer’s representative, is accompanied by a check amounting to approximately 1% of the purchase price. This check is a deposit intended for use in the OTP.
Once the seller agrees to the terms, they sign the Offer to Purchase and may proceed to issue the OTP to the buyer.
In the event that the seller decides to reject the Offer to Purchase or if the validity period of the Offer expires without an OTP being issued, it becomes the seller’s responsibility to return the check to the buyer.
Hence, the seller mustn’t deposit the buyer’s check before signing the Offer. This precaution is necessary to avoid inadvertently transforming the Offer into a legally binding contract, similar to the OTP.
What is in the Offer to Purchase?
The Offer to Purchase includes the following essential details:
- Property address
- Proposed price for the property
- Duration of the OTP, which is typically 14 days, although it is possible to request a longer duration
- Specified date for completing the transaction, usually around 6 weeks after exercising the option, with the flexibility to request additional time if needed
- Validity period of the Offer to Purchase, typically lasting for 3 days
- Additional terms that should be incorporated into the Option to Purchase, such as a 5% deposit
- Inclusion of the “subject to contract” clause in the heading
Do I need an Offer to Purchase if I already have an Option to Purchase (OTP)?
While it is possible for buyers and sellers to proceed directly to the OTP without sending an Offer to Purchase initially, property agents widely follow the practice of sending an Offer letter.
The Offer to Purchase lets buyers specify the terms in the subsequent OTP. For example, if you upgrade from an HDB flat to a condominium and depend on the cash proceeds from selling your flat, requesting a longer OTP period can provide you with more time to carefully evaluate and accept the best Offer for your flat.
Likewise, the offer letter can indicate the desired completion date, which is vital for buyers to know when the transaction will be concluded, enabling them to plan their move-in accordingly.
Therefore, if you have decided to make an offer for a resale property, it is recommended to engage the services of an agent to professionally draft a formal Offer to Purchase.
