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HomePropertyProvide to Buy vs Choice to Buy: What is the distinction?

Provide to Buy vs Choice to Buy: What is the distinction?

The Provide to Buy and Choice to Buy are generally each known as the OTP. Though nowadays, we use “Provide” and “Choice” to keep away from confusion. Additionally they occur fairly shut collectively within the property transaction course of, so it’s not shocking that patrons generally confuse one for the opposite.

It’s good to know the distinction, not least as a result of the wording within the Provide to Buy can later have an effect on the Choice to Buy. Right here’s what you want to know.

What’s an Provide to Buy?

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If a purchaser is , their agent will draft an Provide to Buy for the vendor to simply accept or decline.

The Provide to Buy is a proper letter from the customer to the vendor, expressing a severe curiosity within the property. Not like the Choice to Buy, the Provide is not thought of legally binding. Particulars on the Provide to Buy embrace:

  • The property handle
  • The provided worth for the property
  • The period of the next Choice to Buy, which is also called the choice interval. That is normally 14 days for personal properties, 21 days for HDB resale flats, however you possibly can strive asking for an extended period
  • Date for the completion of transaction. That is normally eight to 10 weeks after exercising the choice, however you possibly can strive asking for extra time.
  • Validity interval of the Provide to Buy (three days is the norm)
  • Further phrases to be included within the Choice to Buy (e.g. a 5% deposit)
  • The clause “topic to contract” (we’ll elaborate upon this later)

Normally drafted by the purchaser’s agent, the Provide to Buy is normally accompanied by a cheque — most frequently 1% of the acquisition worth as deposit — for use for the Choice to Buy. That is additionally generally often called the choice charge.

Upon accepting and signing the Provide to Buy, the vendor might proceed to situation the Choice to Buy (OTP)* to the customer.

If the vendor decides to reject the Provide to Buy, or when the Provide’s validity interval lapses with out an OTP being issued, the vendor should return the cheque to the customer.

So, the vendor mustn’t financial institution within the purchaser’s cheque earlier than signing the provide, as doing so might flip the Provide right into a legally binding contract just like the OTP.

*Though Provide to Buy can be abbreviated as OTP, that is frowned on nowadays as it may result in confusion. It’s extra frequent now to confer with it as simply the “Provide”, whereas referring to the precise Choice to Buy because the “OTP”.

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What’s an Choice to Buy (OTP)?

We now have a extra detailed clarification on Choice to Buy (OTP) right here. However to rapidly recap, the OTP is the precise, legally binding doc for buying a property. As talked about, the associated fee to safe the OTP is normally 1% of the acquisition worth.

In the course of the validity interval of the OTP (which is specified within the Provide to Buy), the vendor can’t grant one other provide to different patrons.

Patrons should train the OTP throughout the validity interval, or else it would lapse, resulting in the forfeiture of the 1% deposit.

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The Provide to Buy can have an effect on the OTP, and its wording issues.

A well-known instance of that is the Montebleu condominium incident in 2013. On this authorized case, the wording on the Provide to Buy stated the “possibility interval” can be “three days” as an alternative of the standard 14 days.

Together with the Provide to Buy, the customer gave the vendor a cheque for the 1% possibility charge. When the vendor issued the OTP, the three-day possibility interval fell proper in the midst of the Chinese language New Yr vacation.

This left the customer in a bind. They tried to train the choice on the primary working day after Chinese language New Yr, however the vendor’s solicitor’s workplace was nonetheless closed.

After they tried once more the following day, the sellers rejected it on grounds that it was already previous the expiry date, and sought to maintain the 1% possibility charge.


In the end although, the Court docket dominated that, whatever the scenario relating to the OTP, each the customer and vendor had entered right into a legally binding contract due to the next two causes:

  • The vendor had banked within the purchaser’s cheque for the 1% deposit
  • The clause “topic to contract” was not discovered on the Provide to Buy, permitting it to turn out to be legally binding after the sellers have signed and banked within the purchaser’s cheque

Following the incident, property brokers at the moment are cautious to incorporate the precise phrase “topic to contract” within the Provide to Buy. It is a clause that may forestall the Provide to Buy from being construed as legally binding, and function a security internet for each patrons and sellers previous to the signing of an precise OTP.

In any case, you possibly can see how the Provide letter can have an effect on the OTP, even when the Provide isn’t a binding authorized doc.

Two people arguing over some documents
Test the provide letter rigorously, as it’d trigger issues with the Choice to Buy (OTP) later.

Why will we nonetheless want an Provide to Buy?

Whereas it’s doable for patrons and sellers to proceed straight to the OTP with out first sending an Provide to Buy, sending an Provide letter is a normal observe that’s utilized by all property brokers — and with good motive.

Issued by the customer’s agent on instruction by the customer, the Provide to Buy permits patrons to specify the phrases of the next OTP. For instance, say you’re upgrading from an HDB flat to a condominium and rely on the proceeds from promoting your flat, specifying an extended OTP interval can provide you extra time to contemplate and settle for the very best provide to your flat.

Likewise, the provide letter can specify the date of completion; that is of sensible significance to patrons, as you want to be clear on when the transaction might be settled and when you possibly can transfer in. As to your HDB flat, the earlier the date of the resale completion, the sooner you will get your proceeds to pay to your subsequent house.

So, for those who’re shopping for a property, it’s all the time a good suggestion to get your agent to draft a proper Provide to Buy for those who’ve seen a house you actually like. In spite of everything, it’s all priced into the agent fee that you simply’ll find yourself paying upon a profitable deal!

[Additional reporting by Virginia Tanggono]

Planning to promote your property to purchase your subsequent house? Allow us to enable you to get began.

If you happen to discovered this text useful, recommends 3 questions first-time HDB resale flat patrons should reply and 5 methods promoting your property can go horribly flawed (and how you can repair it)



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