What is an Option to Purchase, and what happens if I do not exercise it?

What the option does

An Option to Purchase (OTP) is granted by the seller to the buyer. In return for an option fee, it keeps the seller's offer to sell open for a fixed period, during which the buyer alone decides whether to go ahead.

The arrangement is one-sided by design. While the option is open, the seller cannot sell to someone else or raise the price. The buyer is not yet bound and can choose to let it lapse. The option fee is effectively what the buyer pays for that exclusive window.

What an OTP usually contains

The terms vary, but an OTP will normally state:

• The seller, the buyer and the property.
• The price, the option fee and the amount payable on exercise.
• The deadline for exercising the option, and how it must be exercised.
• The completion date.
• Whether the property is sold with vacant possession or subject to an existing tenancy.
• Any special conditions, such as items to be left behind, works before completion or approvals that must be obtained.

Fees and deadlines

For private resale property, the option fee is commonly about 1% of the price and the option period is often around 14 days. These are market practice, not fixed rules, and can be negotiated. On exercise, the buyer pays a further sum so that the total deposit commonly reaches about 5% of the price.

HDB resale flats are different. HDB prescribes its own OTP form, and at the time of writing its terms cap the option fee at $1,000 and the total deposit at $5,000, with a 21-day option period. See the separate guide on buying an HDB resale flat.

Treat the deadline strictly. If the OTP says it must be exercised by a particular date and time, a late exercise may simply not count.

If the option is not exercised

If the buyer does not exercise the option within the period, it lapses according to its terms. The buyer generally forfeits the option fee and has no further claim on the property, and the seller can sell to someone else.

A common reason for letting an option lapse is that financing cannot be arranged in time. This is why buyers are encouraged to confirm their loan position before exercising, not after. Making the OTP conditional on financing is uncommon in Singapore.

If someone backs out after exercise

Once the option is validly exercised, both sides are generally bound. A buyer who then fails to complete may lose the deposit and can also be sued for further losses, for example if the seller has to resell at a lower price. A seller who refuses to complete may face a claim, which in some cases can include an order to complete the sale (specific performance).

If you have exercised an option and find you cannot complete, take legal advice straight away rather than simply telling the other side you have changed your mind.

Why the exercise date matters for stamp duty

For stamp duty purposes, IRAS generally treats the date the Acceptance to the OTP is signed as the date of purchase, and as the date of sale for the seller. That date can decide a buyer's Additional Buyer's Stamp Duty position and whether a seller falls inside the Seller's Stamp Duty holding period, even if completion happens months later.

Sellers should also take care not to grant a second option to another buyer while the first can still be exercised, as they could end up bound to sell the same property twice.

A lawyer can review your situation and explain your options.