What you need to know when acquiring a resale property
Securing your dream home can be a crucial step to build the family life you envision, and the resale market may provide suitable choices. Get familiar with the steps needed between securing the Option to Purchase (OTP) and becoming the owner.
1. Procuring the OTP
After the price negotiation, the seller (or their appointed agent) proceeds to issue the Option to Purchase (OTP). An OTP is a contract that, following payment of the “option fee”, grants an option to the prospective buyer to purchase the property at an agreed price within an agreed period (typically two weeks, although this duration can be worked out between the seller and the buyer).
The issue of the OTP also means the seller ends any negotiations with other potential buyers during this period.
While there isn’t a prescribed guide to the exact content or phrasing of terms within an OTP, most property agents typically use templates provided by their respective agencies. Do carefully review the terms spelt out as the sale of the property will be bound by the contractual clauses listed in it. To procure the OTP, you would have to pay the option fee, usually 1% of purchase price for private homes or S$1,000 for HDB flats.
2. Selecting and securing the mortgage loan
Before reaching the OTP and loan application stages, you should already have an idea how much cash you have on hand and your CPF balances. It is a good practice to get an Approval in Principle (AIP) from a bank. While not legally binding, securing the AIP gives you an estimate of the amount of home loan you are eligible for when shopping for a property, reducing the chance of losing your deposit should you be unable to secure a mortgage loan.
Once you place your option fee, you will need to apply for a home loan with the bank before exercising the OTP.
See also: How much do you need for your home loan?
3. Exercising the OTP
Once the home loan has been approved by the bank, buyers can then proceed to exercise the OTP within the specified timeframe, and then enter into a Sales and Purchase Agreement (S&P) with the seller. Property transactions are typically routine, but the assistance of a lawyer to work on the conveyancing and due diligence is required. As part of S&P, buyers are required to proceed to pay the rest of the downpayment (equivalent to 4% of purchase price in cash). The sale will be called off if the OTP is not duly exercised within the specified period, and the option fee will be forfeited.
Do remember to pay the Buyer’s Stamp Duty (estimated 3% of purchase price) to the authorities within 14 days of exercising the OTP, plus Additional Buyer’s Stamp Duty if you own more than one property.
Your lawyer will then lodge a caveat on the property. This is an official notice of interest on the property, preventing it from being sold multiple times.
Upon exercising the OTP, you and the seller would have agreed upon a date of completion for the sale, typically in about 10 to 12 weeks’ time. During this time, your appointed law firm will run the necessary checks to ensure that the property can be sold with a clean title, without any other caveats lodged against it or any encumbrances. During this period, a formal valuation of the property will also be carried out by your bank’s or HDB’s appointed appraiser. On your part, prepare to submit any necessary documents to your bank or the authorities, plus the cash portion of payment (at least 15% of purchase price or more, depending on your CPF usage and eligible bank loan).
The time gap allows the seller to move out of the property, if they haven’t already, and to ensure that old furniture is disposed of, or agreed repairs completed. This naturally depends on the agreed sales terms – if you are purchasing the property in “as-in” condition or “vacant” possession.
5. Completion of Sales and Purchase
Finally, on the day of completion, make a visit to your lawyers’ office where you will be officially registered as the proud new owner of the property. By now, your lawyer would have already followed up on transferring the remaining 95% to the seller, allowing you to collect the keys to your dream home. Do note that any maintenance fees, property taxes and other charges associated with the property will take effect from this date of completion.
With these last steps in place, you can commence any desired renovation and start transforming the newly purchased unit into your dream home.