What is an Option to Purchase (OTP)?
An Option to Purchase (OTP) is a contractual arrangement in the real estate industry where the buyer and the seller (or developer) agree to sell a residential property.
To secure the property, the buyer is required to pay an option fee upon signing the OTP agreement. The option fee is forfeited if the buyer chooses not to proceed with the purchase before the option expires.
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Option to Purchase (OTP) for private property vs HDB – What’s the difference?
The OTP process differs between private property and HDB resale flats.
- For private properties, the OTP agreement is typically drafted by the seller’s lawyer and signed by both the buyer and seller after agreeing on the purchase price.
The option fee for private properties is usually 1% of the purchase price, which can be negotiated between the buyer and seller.
The option period for these properties is generally 14 days, but this can be extended up to two months if agreed upon by both parties.
- On the other hand, for HDB resale flats, buyers must use HDB’s prescribed OTP form.
The seller must grant the OTP at least 7 days after registering their intent to sell on the HDB Resale Portal.
The option fee for HDB flats cannot exceed S$1,000 and is paid by the buyer. The option period is fixed at 21 calendar days.
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What happens when I want to exercise my Option to Purchase (OTP)?
To exercise the OTP, the buyer must do so within the option period.
For private properties, the exercise price is usually 4% of the sales price and the option fee (1%), making up the balance deposit of 5%.
In the case of HDB flats, the balance deposit cannot be more than S$5,000, including the option fee paid (S$1,000).
After exercising the OTP, the buyer must purchase the property and cannot withdraw from the transaction.
Can I issue more than one Option to Purchase (OTP)?
As a seller, you cannot issue more than one OTP to different buyers as it would obligate you to sell the property to the buyer who exercises the OTP at an agreed-upon price.
However, as a buyer, you can secure multiple OTPs without intending to exercise them all since an option only grants you the right, but not the obligation, to buy the property.
Information provided was accurate at the time of publication. For latest changes and updates, head over to official websites.
