Buying Guide
1% Option Fee vs 4% Exercise Fee: What Each One Locks In
Buyers often treat the option fee and exercise fee as two instalments of the same deposit. They're not. Each one commits you to something different, and confusing them is how people end up exercising an option before they're actually ready to be legally bound.
The option fee: buying time, not the property
Paying the option fee secures your exclusive right to buy at the agreed price for a fixed period. You are not yet committed to the purchase. You can walk away before the option period ends, at the cost of forfeiting this fee, and nothing more.
- Private resale property: customarily 1% of the purchase price (market practice, not set by law).
- HDB resale flat: between $1 and $1,000, negotiated between buyer and seller rather than a fixed percentage.
The exercise fee: the point of commitment
Exercising the option is a separate, later step. You sign and return the OTP together with the exercise fee, and at that moment the sale becomes a binding contract, an Agreement for Sale and Purchase. After this point you are bound by the contract: if you do not complete the purchase you risk losing the full deposit paid so far, not just the exercise fee, and you may face further claims under the contract.
- Private resale property: customarily 4% of the purchase price, bringing the total deposit to 5% (market practice, not set by law).
- HDB resale flat: an amount that, together with the option fee, does not exceed $5,000 (for example $4,000 if the option fee was $1,000).
Why the split exists
Splitting the deposit into two payments, at two different commitment levels, gives buyers a real window to sort out financing without being legally bound from the first dollar paid. The option fee buys that window. The exercise fee is what you pay to actually step through it.
| Option fee | Exercise fee | |
|---|---|---|
| What it does | Secures exclusive right to buy | Converts the option into a binding contract |
| Can you still walk away after paying? | Yes, forfeiting only this fee | No, you are bound by the contract; not completing risks the full deposit |
| HDB resale | Up to $1,000 | Remainder up to $5,000 combined |
| Private resale | ~1% of price | ~4% of price |
Model your own option and exercise fee timeline with PropLeh's Option Analysis tool.
A common mistake
Some buyers exercise the option as soon as they have the cash available, without waiting for loan approval to come through, because the exercise fee feels like "just the next payment." It isn't. Once exercised, failing to complete the purchase, for any reason including a loan falling through, can mean losing the entire deposit and facing further claims from the seller under the contract. The fee split exists specifically so you have time to confirm financing before that point; using the exercise fee as a formality skips the purpose of that window.
FAQ
Is the exercise fee an additional cost on top of the purchase price?
No. Both the option fee and exercise fee are credited toward the purchase price at completion. They are part of what you pay for the property, not extra charges.
Can the option fee and exercise fee percentages be negotiated for private property?
Yes. The 1%/4% split is customary, not legally mandated, and can be negotiated between buyer and seller.
What happens to the option fee if I simply let the option lapse?
The seller keeps it, and the property returns to the market. No further sum is owed by either party.
Can I pay the exercise fee before I've secured a loan?
You can, but it's generally inadvisable. Exercising the option is legally binding, so confirming loan approval beforehand, during the option period, protects you from losing the deposit if financing later falls through. For an HDB resale flat, HDB's OTP notes say buyers taking a bank loan must have a valid Letter of Offer from the bank when they exercise the OTP, and buyers taking an HDB loan must have a valid HFE letter when the sellers grant the OTP.
Figures current as of October 2026. Confirm the applicable deposit structure for your specific transaction with your appointed agent or lawyer.
Modelling your own deposit and timeline before you pay either fee? Try PropLeh's Option Analysis tool, or message us on WhatsApp before you commit.