- The option gives the buyer an exclusive right to buy at a fixed price for a set period.
- For resale private property, the option fee is commonly 1% of the price.
- The option period is usually around 14 to 21 days.
- If the buyer does not exercise the option in time, it lapses and the option fee is generally lost.
What an Option to Purchase is
An Option to Purchase (often called the 'OTP') is a written document in which the seller gives the buyer the exclusive right to buy the property at an agreed price, within a fixed period. While the option is open, the seller cannot sell to anyone else.
The buyer is not yet committed to the purchase. They are paying for time to decide, arrange financing and let their lawyer carry out checks.
The option fee
To get the option, the buyer pays the seller an option fee. For resale private property this is commonly 1% of the purchase price, although the parties can agree a different amount.
If the buyer decides not to go ahead, the option fee is generally forfeited to the seller. That is the price of having had the property reserved.
The option period and exercising the option
The option sets a deadline, usually somewhere between 14 and 21 days for private property. To go ahead, the buyer exercises the option before it expires, by signing the acceptance and paying a further deposit, commonly 4% of the price, bringing the total paid to about 5%.
That further deposit is usually paid to the seller's lawyers, who hold it as stakeholders until completion. Once the option is exercised, it becomes a binding contract for the sale and purchase of the property.
What the option usually contains
Although the option is short, it sets the terms for the whole transaction. It usually covers:
- The property, the parties and the price.
- The option fee, the option period and how the option is exercised.
- The payment terms and the completion date.
- Which standard conditions of sale apply. Many options adopt the Law Society's Conditions of Sale unless the parties agree otherwise.
Before you sign
Because the terms are largely fixed once the option is granted, it is sensible to agree points such as the completion date and which fittings are included before paying the option fee, and to have a lawyer look at the document first. Buyers should also make sure their financing is in place before the option period runs out.
HDB resale flats use a standard form of option prescribed by HDB, and new launches from developers use a different statutory form. Those are covered in separate guides.
A lawyer can review an option before you sign it and explain what you are committing to.
This article is general information on Singapore law and is not legal advice. Rules and agency policies change, and every situation is different. For advice on your own circumstances, speak with one of our lawyers.
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