I am sure you remember the memorable day – the day when you first collected your keys for your HDB.
You received the SMS, followed by the HDB appointment letter and finally the black pouch that contained the keys to your flat!
Over the past few years, you have been paying for your home every month.
You are thinking – maybe it is time for a change.
You might have a few reasons to sell off your HDB flat.
Some of the common reasons I encountered over the years:
- to upgrade to a bigger HDB flat, due to growing family.
- to upgrade to private property, yearn for a better lifestyle choice.
- to downsize to a smaller and possibly fully-paid off HDB flat
- to cash-out for the purpose of retirement
- change of environment
- for future convenience – to be closer to schools or work
There are many more reasons to choose to sell off your HDB flat.
But what is important to note is that selling your HDB flat is not something to be taken lightly.
Ask yourself the following questions before you consider selling your HDB flat:
- Have we explored my various choices and options?
- Have we decided where to stay? (Alternative temporary lodging during the transition)
- Have we checked on our finances?
Selling your HDB is a process that can take several months to complete .
Selling & Buying Your HDB – A Brief Overview
If you are looking to sell – HDB has put up a comprehensive list of the resale procedures on its website: https://www.hdb.gov.sg/cs/infoweb/e-resale/resale-procedures
The steps can be summarized as below:
Step 0 : Potential buyers have to check on their loan eligibility.
They have to make the choice of going for a bank loan or HDB loan. If you are a potential buyer – please check this carefully.
Check which you qualify for? To qualify for a HDB loan, your monthly household income cannot exceed $14,000.
Step 1: Both buyer and seller come to an agreement of the sale price of the HDB flat.
Step 2: OTP is granted by the seller to the buyer – in exchange for a deposit (option fee).
Step 3: It is compulsory for the buyer to submit a valuation request to HDB – if the buyer is getting a loan or using CPF monies for the purchase.
Valuation is NOT required if buyer is going to use full cash for the purchase inclusive of the stamp duty.
Step 4: Check the outcome of the HDB valuation whether it matches or is below the sale price.
Step 5A: Valuation matches – Exercise the OTP by making the cash/cheque payment to the seller. You can proceed to step 6.
Step 5B: Valuation is below the sales price. COV is payable. Buyer has to make to decision to whether to exercise OTP or let the option lapse.
Step 6: Both seller and buyer are ready to submit their individual resale application via the resale portal.
Looks simple right? But looks can be deceiving.
There is a reason why property agents are still needed in a HDB transaction.
What Is The Option To Purchase (OTP) ?
You can download a copy of the OTP form here: https://services2.hdb.gov.sg/webapp/BB24OTPDlWeb/BB24POptionToPurchaseLink
The first 4 pages in the OTP form is essential and should be carefully read. The various terms in this OTP contract is clearly explained in those 4 pages.
The valuation of the HDB cannot be obtained if the OTP has not been granted by the seller.
An OTP is basically a document that gives the buyer the right to proceed to purchase at the agreed price. The buyer is required to place an option fee.
This right will expire after 21 days.
There are several implications of signing an OTP:
- It gives the buyer the right to buy at the agreed price and a waiting period of 21 days to exercise the right.
- It also makes the seller obligated to sell at the agreed price. However, if the OTP is not exercised – the buyer has to forfeit the option fee (sometimes referred to as “deposit”). This money then goes to the seller.
- The option fee can range from $1 to $1000.
- Once the OTP has been signed, the next step is to obtain the HDB valuation.
What Is the HDB Valuation?
It is commonly believed that the HDB valuation provides the current value of the property.
But to be really specific – it actually serves ANOTHER purpose.
The figure given in the valuation actually implies the maximum amount the purchaser is allowed to use – either from the loan or the CPF monies – for the purchase.
Who has the authority to determine the valuation?
The valuation is determined by the appointed valuer who has been assigned by HDB.
Who is in the position to initiate the valuation request?
Only the buyer/purchaser is allowed to initiate the valuation request – provided they are taking a loan or using CPF monies.
For certain circumstances – such as probate case or divorce case – the seller may be allowed to initiate a valuation request – subject to HDB approval.
This report costs $120 for 3-room HDB flat and above.
You can see the details here: https://www.hdb.gov.sg/cs/infoweb/e-resale/valuation-request
So if you are a seller, please refer to this blog post for more information on free tools to use to check on your own HDB flat value.
Does HDB Valuation Always Match The Sales Price?
In my experience – the answer is generally yes. But I have encountered exceptions.
This is because the sales price is usually guided by past transaction data. But some sellers believe their flat is worth more because perhaps they have extensive renovation done or have a very good view.
So there are 3 possible scenarios:
Valuation matches sale price.
There is no COV.
Buyer decides to exercise OTP. Sale can proceed as per normal.
If it matches, then the sale proceeds smoothly. All is well.
Valuation is below sale price.
This means that there is a Cash-Over-Valuation (COV) situation.
Is the buyer willing to pay this COV?
For example, the sale price is $520,000. But the valuation is only $500,000.
There is a COV of $20,000.
Take note that the COV is payable ONLY in cash. If buyer is not willing to pay COV – the option will lapse and the option fee (deposit) is forfeited after 21 days.
If the buyer is willing to pay the COV, then the sale can move forward when buyer pays the exercise fee.
The exercise fee ranges from $1 – $4000.
Valuation is above the sales price.
(Sales price is below valuation.)
This will NOT happen.
If sales price is granted at $500K:
- the valuation will either be $500K
- Or below $500K
This has been going on in the recent 3 to 4 years.
What Used To Happen In The Past?
In the past – if the sales price is granted at $500K and the valuation was $520K – the seller has to write in to CPF Board.
Why? This is because the HDB flat was going to be sold at below market price.
The seller has to write in to appeal for waiver – due to the negative sale and CPF loss.
You can read more about this from the news article from 10 years ago:
CPF Board also released this FB post back in 2014: https://www.facebook.com/notes/cpf-board/8-things-you-should-know-when-using-cpf-for-property/10154443613615177/?pnref=story
Take note how even back in 2016 – just 3 years ago – you would have to top-up the difference in cash if your property was sold below market value.
So back then – it was required to submit an appeal to CPF Board if your flat was being sold below HDB valuation.
Rising Cases of Negatives Sales Recently
Over the past few years – I noticed that HDB negative sales are increasing. This is based on my experience on the ground.
Lately, I noticed that the respective authorities has fine-tuned the process.
That’s why Scenario C will not happen in today’s market.
(A negative sale means that when the HDB flat is sold – the resale price may be enough to pay off the outstanding loan but not enough to repay the CPF refund with accrued interest. There are no cash proceeds in a negative sale.)
Interesting isn’t it?
OTP Was Granted – But Was Not Exercised. Why?
As someone who has closed more than 100 HDB transactions over the past 2 years, I have encountered enough cases when the transaction does not go through.
The OTP might have been granted but the option was never exercised.
Here are some of the common ways your HDB sale can go wrong:
Mistake #1: Failure To Register Intention
To start initiating a sale, the seller must fill up an online form called “Register Intention To Sell”.
This form will help you check whether you are eligible to sell off your HDB flat.
Similarly the buyer must also fill up an online form called “Register Intention To Buy.”
If either is overlooked, the sale process cannot move forward.
Mistake #2: Failure To Do Proper Research On Transaction Data
When the valuation figure is received by the buyer – the buyer is taken aback by the difference in sale price and valuation.
For example, the valuation is $500K. But the sale price is $550K.
This means the buyer has to fork out a significant COV of $50,000 in cash.
Most buyers will be caught by surprise and is unprepared – allowing the OTP to lapse.
Mistake #3: Failure to Check on HLE Expiry Date
This happens when the buyers overlooked on their Home Loan Eligibility (HLE) because it has already expired during the option of the property.
HLE status will usually expire after 6 months.
Mistake #4: Failure to Check on HLE Status
Some buyers make a mistake about their HLE status.
For example – their HLE was actually meant for BTO purchase and not for resale purchase.
So if you are a buyer – do confirm and check on your HLE flat type and status.
Mistake #5: Failure to get an IPA on Loan
A loan quantum check was not done.
For buyers taking a bank loan – they are advised to get an IPA (In-Principle Approval) to check how much loan they are eligible.
It is advisable to check the loan quantum granted by the bank before optioning the house.
The Importance of Being Careful & Concise
The above are just a sample of the potential mistakes and errors that can really cause the sale of your HDB to be delayed.
Some people might think the above are actually very minor errors.
I can personally attest these mistakes if committed – will result in a lot of time, energy and monies wasted.
Imagine starting the entire sales process, viewing and negotiation process all over again?
Very painful – not just for the agent – but for the seller as well.
You might have seen cases of some sellers eventually giving up and not move forward.
You might also have seen cases of property listings being on the market for very long period.
Usually this means someone is not doing their job well.
That’s why it is so important to have an experienced agent on your side.
Selling your HDB might seem straightforward on the surface.
But the valuation process – which is done only after the OTP – has made the unknown factors become even more uncertain.
For example – the idea of COV being payable or not – it is an unknown factor to the buyer.
It can only be discovered after the HDB valuation report comes out.
Even if the process from OTP to valuation to exercising the option goes smoothly – issues can still come about especially if certain required items are overlooked.
Over the years, I have developed an instinct on potential challenges that can come about in a HDB transaction.
If you are keen to explore your next options after your HDB – I invite you to contact me for a no-obligation discussion.
Resale Flat Prices: https://services2.hdb.gov.sg/webapp/BB33RTIS/BB33PReslTrans.jsp
The Proceeds After Selling Your Home: https://www.areyouready.sg/YourInfoHub/Pages/Views-5-Steps-To-Selling-Your-Home.aspx