Your search results

What’s The Difference Between An Offer To Purchase And An Option To Purchase?

Posted by Jayson Ang on May 29, 2023

| 0

TLDR

Understanding the crucial difference between an Offer to Purchase and an Option to Purchase (OTP) is vital when buying a property. An Offer to Purchase is a non-legally binding document where a potential buyer expresses interest in acquiring a property. It includes essential details like the property address, offered price, and option period. On the other hand, an OTP is a legally binding agreement that secures the property for the buyer. The Offer to Purchase influences the terms of the OTP, so it’s important to pay attention to its wording. Both documents play significant roles in the real estate transaction process, ensuring clarity and protection for both buyers and sellers.

If you’re buying a property, it’s important to understand the distinction between an Offer to Purchase and an Option to Purchase—often referred to jointly as the OTP.

In order to avoid confusion, we use the terms “Offer” and “Option” separately these days. Although they occur near each other in the real estate process, many buyers tend to mix them up.

Remember, the language in the Offer to Purchase could later influence the Option to Purchase, so it’s worthwhile to know the difference.

What is an Offer to Purchase?

If a potential buyer is interested, their real estate agent will craft an Offer to Purchase for the seller to accept or reject.

This formal document from the buyer expresses their sincere desire to acquire the property, and is not legally binding like the Option to Purchase.

The Offer to Purchase may include:

The address of the property,
The price it’s being offered for,
The length of the Option to Purchase period (commonly known as the option period), which is typically 14 days for private properties and 21 days for HDB resale flats (though you can ask for a longer duration)
Completion of the transaction, which is usually 8 to 10 weeks after the option has been exercised (though you can request more time).
The Offer to Purchase must be valid for at least three days,
And should include additional terms such as a 5% deposit.
The phrase “subject to contract” will be elaborated on later.

The buyer’s agent typically drafts the Offer to Purchase, typically accompanied by a cheque for 1% of the purchase price as a deposit – commonly referred to as the ‘option fee’.

Once the Offer to Purchase is accepted and signed by the seller, they can then issue the Option to Purchase (OTP) to the buyer.

Should the seller opt to turn down the Offer to Purchase or no OTP being issued within the Offer’s set validity period, the buyer’s cheque must be sent back.

The seller should avoid banking the buyer’s cheque before signing the Offer, as this could unintentionally create a legally binding contract similar to an Option to Purchase (OTP).

It’s much clearer to just refer to it as the “Offer” and the “OTP” separately.

What is an Option to Purchase (OTP)?

The Option to Purchase (OTP) is the legally binding document to secure a property – and it doesn’t come for free! Generally, the cost of the OTP is 1% of the purchase price.

This offer is only valid for the duration of the OTP’s validity period (as stated in the Offer to Purchase).

So, if the buyer fails to exercise the OTP during that time, their 1% deposit will be lost.

The Wording Of The Offer To Purchase Can Have A Significant Impact On The Drafting Of The Option To Purchase – Make Sure It Counts!

In 2013, a famous resale condo incident made legal history; the Offer to Purchase stated that the “option period” was to be a mere “three days” as opposed to the typical 14 days.

When the seller issued the Offer to Purchase, they and the buyer agreed on a three-day option period that unfortunately fell during the Chinese New Year holiday, leaving the buyer in a tricky situation.

The buyer had paid the 1% option fee upfront and tried to exercise the option on the first working day following the holiday, only to find that the seller’s solicitor’s office was still closed.

Undeterred, the buyer tried again the next day, but unfortunately the seller rejected it, citing the expiry date had already passed and kept the option fee.

In the end, the Court declared that, despite the dilemma regarding the OTP, both the buyer and seller had created a valid contract for two key reasons : After the sellers signed and banked in the buyer’s cheque with no “subject to contract” clause on the Offer to Purchase, the transaction became legally binding.

After the episode, property agents are currently being extra careful to include the accurate term “subject to contract” in their Offer to Purchase.

This clause can prevent the Offer from being seen as a legally binding agreement, offering protection for both buyers and sellers before signing a valid OTP.

It’s important to pay attention to the Offer letter, since it can bring about complications concerning the Option to Purchase in the future.

Why Do We Still Need An Offer To Purchase?

It is generally a smart idea to go with the flow and send an Offer letter prior to the OTP, as this is the usual practice for all property agents – and for good cause.

On instruction from the buyer, the Buyer’s Agent issues an Offer to Purchase that allows them to set the conditions for the subsequent Option to Purchase.

For instance, if one is looking to upgrade from an HDB flat to a condo, and relies on the profits from the sale of their flat, specifying an extended OTP duration can provide more time to ponder over and accept the ideal offer for the flat.

If you’re planning to purchase a new HDB flat, it’s vital to have a clear understanding of the completion date stated in the offer letter.

Knowing exactly when the transaction will be finalized is essential for buyers so that you can start getting ready to move in. Plus, the sooner the resale completion date is, the sooner you’ll be able to access the proceeds to help fund your new home!

If you’re in the market for a new property, it’s always best to get your agent to draw up a formal Offer to Purchase if you’re interested in a property.

Ultimately, this is included in the agent commission that you’ll pay when the deal is finalized!

Should You Buy, Sell or Wait?

If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?

It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.

I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.

I can help you by:

Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.

You May Also Like …

Mandarin Top 5

Top 5 : Tips To Plan Your Retirement in Property Investments in Singapore

Jayson Ang – February 17, 2025 –

Planning for retirement is a crucial aspect of financial management, and property investment has emerged as a popular strategy for...

All Opinion

What Might Occur If We Ease Property Cooling Measures?

Jayson Ang – July 21, 2025 –

TLDR To assess if Singapore’s property cooling measures are working, compare our actions with China, which is applying the opposite...

Buying Tips Mandarin Top 5

5 Essential Tips for Renting Property in Singapore as a Foreigner: A Guide for Newcomers

Jayson Ang – July 25, 2023 –

TLDR Renting property in Singapore as a foreigner can be challenging due to the high cost of living. To navigate...

All Buying Tips

What Are The Key Factors That Contribute To Property Valuations And Why Are They So Crucial?

Jayson Ang – October 23, 2023 –

TLDR Understanding property valuations is crucial for both buyers and sellers in the real estate market. Property valuations involve two...

All Opinion Selling Tips

3 Property Owners Reveal Their Major Mistakes: The Pitfalls of Ill-timed Home Sales

Jayson Ang – December 10, 2023 –

TLDR When it comes to navigating the ups and downs of the Singapore property market, timing is crucial. Three real-life...

Mandarin Top 5

Top 5 : Key Reasons to Invest in Industrial Property in Singapore

Jayson Ang – February 15, 2025 –

Singapore, a small yet densely populated country, has emerged as a significant player in the global industrial property market. Its...

Mandarin Top 5

Top 5 Reasons : How Investing in a Luxury Condominium in Singapore Can Boost Your Portfolio

Jayson Ang – January 16, 2025 –

Investing in a luxury condominium in Singapore is an attractive option for investors looking to diversify their portfolio and enjoy...

All Buying Tips Opinion

A Potential Game-Changer: Singapore’s Proposed Minimum Transaction Rule for Property Agents in 2025

Jayson Ang – July 20, 2026 –

TLDR In Singapore’s real estate market, experience alone no longer guarantees an agent’s competence. Many agents maintain licenses without significant...

All Buying Tips Opinion

Neighbourhood Estate Guide: Is Holland Village the Most Charming and Relaxed of HDB Estates?

Jayson Ang – January 1, 2025 –

According to the 2014 master plan, Holland Village was given the prestigious title of an "identity node," confirming its status...

All Blog Posts Opinion

Are You Ready to Take on the Singapore Property Market in 2023? 12 Reasons to Be Hopeful (Or Wary)!

Jayson Ang – December 21, 2022 –

2022 sure was a rollercoaster ride for the property market, and the world! From war in Europe to skyrocketing interest...

All Buying Tips

5 Reasons Why Your House Isn’t Selling – and How to Overcome Them!

Jayson Ang – June 24, 2023 –

TLDR When trying to sell your home, ensure it is competitively priced based on its unique features and the current...

Mandarin Top 5

5 Reasons : Why Investing In Singapore Property Is The Best Decision I Ever Made

Jayson Ang – May 10, 2024 –

Investing in property is a great way to build wealth and secure a stable source of passive income. When it...

All Opinion Selling Tips

When will En-Bloc set to Become Reality Beyond 2023?

Jayson Ang – November 24, 2023 –

TLDR The real estate market is experiencing a lull in en-bloc activities due to various factors. Higher Additional Buyer’s Stamp...

Mandarin Top 5

Top 5 Differences Between OCR, RCR And CCR In Terms Of Lifestyle And Culture

Jayson Ang – April 15, 2025 –

Singapore, a vibrant and diverse city-state, is known for its unique blend of cultures, modern architecture, and thriving economy. The...

Mandarin Top 5

Top 5 Tips : How to Choose the Right Type of Property to Invest in Singapore – Expert Tips and Analysis!

Jayson Ang – September 24, 2024 –

Investing in property has long been a popular method for growing wealth in Singapore. With million-dollar HDBs being sold and...

All Blog Posts Buying Tips

Avoid The Possibility Of Negative Cash Sales: Find Out How Much Your HDB Has To Appreciate To Steer Clear Of It!

Jayson Ang – January 31, 2023 –

TLDR When selling your property, watch out for negative cash sales that could leave you with no money after CPF...

All Buying Tips Opinion

Say Goodbye to “Sell One, Buy Two” Approach in 2024

Jayson Ang – June 24, 2024 –

TLDR Summary: The "Sell One, Buy Two" real estate tactic, popularized in 2016-2017, involves selling a property and buying two...

Mandarin Top 5

Top 5 : Benefits of Investing in Newer vs. Older Singapore Property Market Condos for International Buyers

Jayson Ang – January 4, 2025 –

Singapore's property market has always been an attractive investment option for international buyers, thanks to its stable economy, strategic location,...