In Malaysia, buying a house with a 14-day Option to Purchase (OTP) can carry several risks, primarily due to the short timeframe for due diligence and legal checks. Here are the key risks to consider:
1. Insufficient Time for Due Diligence
– Title & Legal Checks: Verifying the property’s title (e.g., whether it’s free from liens, caveats, or legal disputes) typically takes time. A 14-day OTP may not be enough for a thorough check.
– Outstanding Loans or Charges: If the seller has an existing mortgage, the 14-day window may not be enough for a bank redemption process.
– Outstanding Utilities & Taxes: Checking for unpaid quit rent, assessment fees, or utility bills (like water and electricity) may be rushed.
2. Financing Risks
– Loan Approval Delays: Banks in Malaysia usually take 2–4 weeks to approve a home loan. If your loan is rejected within the 14-day period, you may lose your deposit (if the OTP is non-refundable).
– Valuation Issues: If the bank’s valuation is lower than the purchase price, you may need to renegotiate or cover the shortfall—difficult to resolve in 14 days.
3. Property Defects & Inspection
– Hidden Defects: A proper inspection (especially for subsale properties) may require more time to uncover structural issues, leaks, or termite damage.
– No Cooling-Off Period: Unlike some countries, Malaysia does not mandate a cooling-off period for property purchases. Once the OTP is signed, you may be legally bound.
4. Risk of Losing the Earnest Deposit
– Most OTP agreements require a 2–3% deposit (earnest money). If you back out after signing (due to loan rejection or other issues), the seller may forfeit your deposit.
5. Seller’s Market Leverage
– A short OTP period benefits the seller, as they can quickly relist the property if you fail to proceed, while you risk losing time and money.
How to Mitigate Risks?
– Engage a Lawyer Early: Have a property lawyer review the Sale & Purchase Agreement (SPA) and title search before signing the OTP.
– Pre-Approved Loan: Get a loan pre-approval before committing to the OTP.
– Extend the OTP Period: Negotiate for a 21–30 day OTP to allow more time for checks.
– Check the Property Thoroughly: Hire a professional inspector if needed.
Conclusion
A 14-day OTP is risky unless you have already secured financing and conducted preliminary checks. If possible, negotiate for a longer option period or ensure all critical verifications are done before committing.
