View Full Version : Option to purchase
bluetoffee
20-06-13, 11:48
Hi all, I recently purchased a PC and while going through the OTP process, the seller stated on the OTP that the next 4% is to be payable to his name instead of conveyancing acct. However the practice is to first offer the 1% cheque to the seller before buyer receives the OTP with all these terms on it. It seems the buyer cannot back out even if we do not agree with the terms on the OTP.
Would appreciate your comments on this as I find this process is disadvantageous to the buyer and I would like to learn from you guys if I miss anything, or how I can proctect my interest for future purchase.
Hi all, I recently purchased a PC and while going through the OTP process, the seller stated on the OTP that the next 4% is to be payable to his name instead of conveyancing acct. However the practice is to first offer the 1% cheque to the seller before buyer receives the OTP with all these terms on it. It seems the buyer cannot back out even if we do not agree with the terms on the OTP.
Would appreciate your comments on this as I find this process is disadvantageous to the buyer and I would like to learn from you guys if I miss anything, or how I can proctect my interest for future purchase.
have you signed the OTP?
http://www.stproperty.sg/articles-property/legal-guides/exercising-an-option-to-purchase/a/116051
From the article, legal case.
dont be smart alex. if OTP stated cheque in seller's name, then issue cheque in seller's name, instead of conveyancing acct.
if not, you will lose the 1%.
louisebrown
20-06-13, 12:16
You should have asked for a copy of the unsigned OTP for your lawyer's vetting.
Only upon your lawyer's affirmative advice should you have given the check in exchange for the signed OPT.
in subsale or resale, you pay to the seller. there is no conveyancing account unless you are buying developer's sales. you just need to do your legal due diligence through your lawyer to ensure that seller is really the owner; then only 1% is at risk.
in subsale or resale, you pay to the seller. there is no conveyancing account unless you are buying developer's sales. you just need to do your legal due diligence through your lawyer to ensure that seller is really the owner; then only 1% is at risk.
to exercise OTP, OTP will usually said "the said payment of $$$$ shall be in favour of (seller's solicitor)".....
but in his case, OTP will read "the said payment of $$$ shall be in favour of seller". i think that's what TS means and that's what he has trouble accepting.
But also have conveyancing account for subsale/resale, due to lawyers running away with client's money.
i stand corrected of course.
thomastansb
20-06-13, 14:05
I don’t see why it is disadvantageous. Whether the 4% is paid to law firm or seller, it is the same amount. As for the process, I can only say it is disadvantageous to anyone without knowledge. But it is the same everywhere, not only property.
Anyway in future, when you make an offer of 1%, you need to state your terms. Your agent will have a form saying that you are offering 1% in exchange for an option. For example, you need to state only 4% is required to exercise the option (some can ask for 9%). And also, option period, exercise period etc. All these, your agent need to explain it to you (thus, the hefty commission).
As for yourself, I would suggest that you brush up your knowledge and also, read thru the option many times so in future, you know what terms you want/need. Can you imagine, the seller grant you a 1 day option with 2 weeks completion. How are you going to exercise it in time or even complete it in time?? (CPF application takes at least 6 weeks already). I will put 80% of the blame on your agent for failing to advise you anyway. 2% commission of a 1M condo = 20k already. After cobroke, is 10k. After paying company, still get 8k.
Also, I assume you just give 1% cheque without getting anything back right? That is WRONG !
You need to get back a receipt from the agent. And not forgetting, the form with the terms when offering that 1%. Usually, agents too lazy to fill that up but in legal terms, that is fu*king important. The practice on the ground is to negotiate by phone. After you offer 1% cheque, both agents will communicate things like OTP period, exercise period, &/or nominees etc. The &/or nominees is important if the buyer wants to flip the option. So these are some things that you need to be aware of
.
Paying 4% exercise fees directly to Sellers is common nowadays as many sellers would want to avoid paying the conveyancing acct fees.
However, usually the buyer's solicitor would need to carry out due diligence to check the mortgage status of the seller. I think they have a certain criteria for it.
Just wondering in this case, does it mean that if buyer is not agreeable to pay the 4% directly to seller, they can ask for refund of the 1%?
Maybe some experts can clarify
Paying 4% exercise fees directly to Sellers is common nowadays as many sellers would want to avoid paying the conveyancing acct fees.
However, usually the buyer's solicitor would need to carry out due diligence to check the mortgage status of the seller. I think they have a certain criteria for it.
Just wondering in this case, does it mean that if buyer is not agreeable to pay the 4% directly to seller, they can ask for refund of the 1%?
Maybe some experts can clarify
paying 4% to sellers' lawyer acct is common.
paying 4% to sellers' acct is uncommon.
paying 4% to sellers' lawyer conveyancing acct is NEW.
people have this misconception that lawyer acct is conveyancing acct, it is different.
where got time for buyer's solicitor to carry out due diligence?
i issue OTP, you issue check. you dont like it, next buyer please.
due diligence only when you exercise OTP.
once you sign OTP, cannot back out - so no refund.
bluetoffee
20-06-13, 15:25
paying 4% to sellers' lawyer acct is common.
paying 4% to sellers' acct is uncommon.
paying 4% to sellers' lawyer conveyancing acct is NEW.
people have this misconception that lawyer acct is conveyancing acct, it is different.
where got time for buyer's solicitor to carry out due diligence?
i issue OTP, you issue check. you dont like it, next buyer please.
due diligence only when you exercise OTP.
once you sign OTP, cannot back out - so no refund.
Hi Hopeful,
You got my point. From what my lawyer said, paying 4% to sellers' lawyer conveyancing should be the norm. In fact at the lawyer's office, I was asked to issue cheque to sellers' lawyer with "cvy" stated in the cheque, but she then realised the OTP says pay to seller. The risk is that in the 3 months before transfer is completed, the seller could run away with the money, or drop dead or whatever. This is the risk we are exposed to. All the lawyer can do is to check that the seller does not have multiple debtors queueing to claim from him.
So as a buyer, I issue 1% to the seller agent and got the Offer to Purchase as "receipt". 1-2 days later, I receive the Option to Purchase from the seller. So my question is, at this point if I'm not happy with the terms, I have to suck thumb coz 1% already issued to seller? Or is this the normal practice buyers out there are happy with? Coz I find it flawed.
Hi Hopeful,
You got my point. From what my lawyer said, paying 4% to sellers' lawyer conveyancing should be the norm. In fact at the lawyer's office, I was asked to issue cheque to sellers' lawyer with "cvy" stated in the cheque, but she then realised the OTP says pay to seller. The risk is that in the 3 months before transfer is completed, the seller could run away with the money, or drop dead or whatever. This is the risk we are exposed to. All the lawyer can do is to check that the seller does not have multiple debtors queueing to claim from him.
So as a buyer, I issue 1% to the seller agent and got the Offer to Purchase as "receipt". 1-2 days later, I receive the Option to Purchase from the seller. So my question is, at this point if I'm not happy with the terms, I have to suck thumb coz 1% already issued to seller? Or is this the normal practice buyers out there are happy with? Coz I find it flawed.
I agree that it is your agent's fault. He has to ensure the terms are fair to you. In this case, if 4% released to seller direct, it is disadvantageous and risky to you. But you have unwittingly accepted this risk as you did not appoint your own buyer's agent and/or did not request the seller's agent for a receipt when handing over the 1% cheque to indicate the terms of the sale.
Hi Hopeful,
You got my point. From what my lawyer said, paying 4% to sellers' lawyer conveyancing should be the norm. In fact at the lawyer's office, I was asked to issue cheque to sellers' lawyer with "cvy" stated in the cheque, but she then realised the OTP says pay to seller. The risk is that in the 3 months before transfer is completed, the seller could run away with the money, or drop dead or whatever. This is the risk we are exposed to. All the lawyer can do is to check that the seller does not have multiple debtors queueing to claim from him.
So as a buyer, I issue 1% to the seller agent and got the Offer to Purchase as "receipt". 1-2 days later, I receive the Option to Purchase from the seller. So my question is, at this point if I'm not happy with the terms, I have to suck thumb coz 1% already issued to seller? Or is this the normal practice buyers out there are happy with? Coz I find it flawed.
1. Ask for a copy of the option to purchase so can review the terms to see if anything unusual before issuing 1%
2. Forward date the check and state what you want to see a signed option to purchase within 1-2 days
.......
So as a buyer, I issue 1% to the seller agent and got the Offer to Purchase as "receipt". 1-2 days later, I receive the Option to Purchase from the seller. So my question is, at this point if I'm not happy with the terms, I have to suck thumb coz 1% already issued to seller? Or is this the normal practice buyers out there are happy with? Coz I find it flawed.
yes in your case, you have to suck thumb. sorry.
read the link i posted earlier. follow the terms of the OTP. pay 4% to seller means pay 4% to seller. dont try to act smart and try to safeguard your money by paying to the seller's lawyer acct.
it is normal practise in a rising market. In a rising market, seller is king, so buyer suck thumb. don't like it, there will be other buyers.
in a falling market, buyer is king of course. you can dictate the terms.
bluetoffee
20-06-13, 16:37
I agree that it is your agent's fault. He has to ensure the terms are fair to you. In this case, if 4% released to seller direct, it is disadvantageous and risky to you. But you have unwittingly accepted this risk as you did not appoint your own buyer's agent and/or did not request the seller's agent for a receipt when handing over the 1% cheque to indicate the terms of the sale.
There is a receipt in the form of an Offer to Purchase form signed by buyer, agent, and later the seller, but it basically just says you have paid x amount and must be accepted by xx date and if seller accepts, sign here.
From the responses thus far, unless buyers deals with sellers directly and both parties agree on the terms before handing over the 1% cheque, buyers have to hope the agents are reliable and do a proper job on the terms before handing over the cheque.
How does the others here, who have transacted on resale properties, handle it differently?
Hi Hopeful,
You got my point. From what my lawyer said, paying 4% to sellers' lawyer conveyancing should be the norm.....
as stated earlier, lawyer acct and lawyer conveyancing account is diffrent.
pay to lawyer conveyancing account will result in higher legal fees, but is safer for the client.
since it is more expensive by a few hundred dollars, i chose to pay to the lawyers' account instead of lawyer conveyancing acct
bluetoffee
20-06-13, 16:39
1. Ask for a copy of the option to purchase so can review the terms to see if anything unusual before issuing 1%
2. Forward date the check and state what you want to see a signed option to purchase within 1-2 days
Thanks. This is good advise.
bluetoffee
20-06-13, 16:55
pay 4% to seller means pay 4% to seller. dont try to act smart and try to safeguard your money by paying to the seller's lawyer acct.
We LL wrote the cheque to seller as advised by lawyer... :beats-me-man:
Just wanted to open this discussion and learn how others cover themselves on this. But I'm kind of surprise this is an accepted norm... maybe Singapore is too safe a place
We LL wrote the cheque to seller as advised by lawyer... :beats-me-man:
.... But I'm kind of surprise this is an accepted norm... maybe Singapore is too safe a place
It is very common because cheques are crossed " A/C payee only. Not Negotiable " and thus no different than issuing cheques to law firms, etc.
Have seen 19% and 9% cheques issued to sellers....nothing went wrong .
Seller is getting only 20% ( assuming 19% cheque to seller ) and still has 80% due upon completion.
It is very common because cheques are crossed " A/C payee only. Not Negotiable " and thus no different than issuing cheques to law firms, etc.
Have seen 19% and 9% cheques issued to sellers....nothing went wrong .
Seller is getting only 20% ( assuming 19% cheque to seller ) and still has 80% due upon completion.
what TS is afraid of a few things.
eg, a seller can issue multiple OTP in return for that 1%. yes the seller is arrested but your money is gone
eg. seller issue OTP which is not his property. yes the seller is arrested but your money is gone
eg a seller issue OTP with time to exercise 1 week only. OTP already signed, 1% cheque already issued. Buyer have no time to look at the OTP before signing.
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