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  • Aaron Lin Property

"3 MONTH EXTENSION STAY" - A BIG TRAP

Is a 3 months extension stay a good solution for a win-win situation? What are some of the risks associated, and who really wins?

 
The trap

Based on the title of the article, it's obvious what the trap that we will be discussing today is. This trap is often portrayed as a solution or a perfectly legitimate way of solving a housing challenge for property sellers. The main reason why we consider it a trap is the need for sellers to buy fast after selling.


In case you didn't realise by now, the trap is this thing called the '3 months extension stay'.


How it works?

Framed as a method to help sellers, it's an extension to help sellers buy time before they move out of the property they have already sold. As a buyer who's enquiring about a property unit you are interested in, you might hear that this unit has a 3 months extension requirement.


This extension means an extension to stay for 3 months after the transaction has been completed. For the buyer, you would have the house in your name, but the seller would still live in it for 3 months.


This extension is usually mentioned as an agent's solution provided sellers. The conversation can go as such:

Seller: 'Dear agent, I want to sell my unit, sell this unit then buy that',

Agent: 'Oh, so you have a place to stay in the period between?'

S: 'No I don't'

A: 'Then you have to rent?'

S: 'Rent? Then I don't want to sell anymore'

A: 'Never mind, let me settle it for you'

A: 'I recommend this method - 3 months extension'


The method sounds great in theory:

  1. You sell to the buyer, and ask for 3 months extension

  2. During the transition period, you take your time to get the new place

  3. You have 2 units to use as you coordinate a smooth transition from the place you sell to the one you buy

  4. You do not need to rent and successfully sell then buy.

Why do we call this a trap then? Read on


Issues with the method - Sellers

With the 3 months extension, sellers need to buy within a timeline, and naturally, they are forced to pay more as the purchase is urgent. In the current market, to buy and move in within 1 month is a huge challenge. Why? There is a lack of serious sellers in the market.

Thus, if you do not successfully make the purchase within the first month of your extension, you will not have enough time for a proper transition. That's why you will be forced to pay higher prices as time ticks down.


There is also a chain effect of the market asking for 3 months extension affecting supply. You asking for 3 months extension as a seller also means that other sellers selling to you are asking for the same 3 months extension. Say if 80% of the sellers ask for this extension, your choices would be left with the 20% of units, as you are short on time.


From an already difficult task with 100% of the available units, it has become also insurmountable with the chances cut to a fifth. Imagine if you are unable to buy in time, you will still be forced to consider renting.


As a seller, do you now recognise how this method is in reality a trap? In fact, this problem will only grow as more people are looking to sell before buying.


HDB Seller requirements

For HDB Sellers, it's also important to understand the legalities. To get a legal extension approved by HDB, you would need to have an OTP, a contract to make your purchase first before selling. Otherwise, this 3 months extension would not be approved legally by HDB.


Hence, proposed solutions of 3 months extensions are likely to be private arrangements. We will not get into the technicalities, but this is something HDB sellers need to be aware of.


Buyers Considerations

Next, we discuss how this extension would work from the buyer's point of view. This discussion would only consider private units, to avoid the legal discussions of HDB transactions.


From the point of view of a buyer, you would have bought a unit, completed the transaction. But, due to the extension, the person staying in your unit is the seller. There could be countless things that happen in this three months period that would affect your purchase and your unit. The seller might decide not to release the unit, remove a fan here, remove an air con there, and so on.


Legal implications

Is the law going to help you? To the lawyer for the transaction, the case has already been closed as you have completed the deal earlier.


Without going into details, we hope this sows the seeds of some 'what-if' thoughts. We want to encourage buyers to be more aware of the possibilities that could happen when you partake in such a 3 months extension type of arrangement.


Awareness & Summary

Our intention of discussing this 'method' as a trap is to increase awareness in the market about the realities that could happen. For many buyers and sellers, a property transaction is something huge that comes by once in a long while, and by the time you realise, you might already be trapped.


Hence, to prevent troublesome situations, avoid regrets and stop yourself from losing money, it's important to think and think again when an agent comes to you with the proposal of a 3 months extension to 'solve all your troubles'.

 

Listen to Aaron share his thoughts about the idea of a 3 month extension stay! Why is it a Trap and what can you do?


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