What is an Option to Purchase (OTP) and how does it work?

An Option to Purchase (OTP) is a legally binding agreement that gives a prospective buyer the exclusive right to purchase a property within a specified period and at an agreed price. It is a critical document in any property transaction in Singapore.

For private property transactions, when you find a property you wish to purchase, the seller's agent will prepare the OTP. You pay an option fee, typically 1% of the purchase price, to the seller. This grants you the exclusive right to purchase the property within a validity period, usually 14 days for private properties. During this period, the seller cannot offer the property to other buyers.

If you decide to proceed, you exercise the OTP by signing the acceptance copy and paying the exercise fee (typically 4% of the purchase price, bringing the total to 5%) to the seller or the seller's solicitor. Once exercised, the OTP becomes a binding Sale and Purchase Agreement. If you choose not to exercise the OTP, you forfeit the 1% option fee, but you are not obligated to proceed with the purchase.

For HDB resale flat transactions, the process is slightly different. The OTP uses a prescribed HDB form that the seller downloads and prints, and is valid for 21 calendar days. The option fee is between S$1 and S$1,000, negotiated between buyer and seller. The combined option fee and exercise fee cannot exceed S$5,000.

The OTP period is when you should secure your financing. Before exercising the OTP, ensure you have your HDB Flat Eligibility (HFE) letter or bank Letter of Offer (LO) in place. Exercising the OTP without confirmed financing puts you at risk of being unable to complete the purchase.

Property agents and lawyers typically handle the OTP process, but understanding the mechanics empowers you to make informed decisions. Cashew recommends securing financing arrangements before or during the OTP period to avoid last-minute complications.