A sale and purchase agreement is a bilateral contract between buyer and seller to complete a property transaction.
Details in the agreement include:
- Legal names of buyer and seller
- Purchase price
- Address of property in question
- Terms of transaction
- Date by which the transaction should close
- Provisions of contract
- etc
Also called an S&P, if a deal has got to this stage, the homeowner is now legally obligated to sell the house, and the buyer is legally obligated to buy the property.
Either party withdrawing from the deal from this point onwards can subject the failing party to damages claims from the other party.
This can be as simple as forfeiture of deposit money, or in extreme cases, going all the way to court to force a sale.
Resale property
For a typical resale property purchase, the home buying process would usually start with an option to purchase and then a sales and purchase agreement after the buyer has exercised the option.
The buyer typically pays an option fee of $1,000 for the OTP which gives him the legal right to purchase the completed property within a specified period of time.
At this stage, the seller is obligated to sell but the buyer is not obligated to buy.
Should the buyer decide not to proceed with the purchase for one reason or another, he can easily walk away with the only loss being the option fee that was paid upfront.
It could be that he has found a better house at a better price offering much better value. It could be that upon a second inspection of the property, he discovered major defects that would costs a fortune to repair. It could also be that family members are strongly against that particular house.
At his point, it’s not impossible for sellers who are desperate to sell to offer a discount on the agreed price just to move the deal forward.
There is no obligation to buy at any point.
New property
For the sale of new developments, the usual practice is to move straight to an S&P contract without the need for an OTP.
This is why for new launch condominiums, buyers are often presented immediately with sales contracts instead of OTP.
This is partly because the developer would want to go as far into a sale process as possible to minimize the potential of losing sales.
If a particular unit is put on hold or reservation pending a prospective buyer’s decision to go ahead, genuine and more serious buyers would not be able to purchase the unit during the waiting period an OTP. It would be fine if the potential buyers ends up buying the unit. But if he ends up backing off from the purchase, the opportunity costs for the developer can be considerable.
This is however, theoretical. In the reality of Singapore real estate, the likelihood is that a developer would raise prices within weeks, and there would still be interested buyers.
With and S&P ensuring a buyer’s commitment, buyers would find it a much tougher decision to renege on the purchase agreement.
