When buying a home for the first time it is possible to encounter real estate terms that may be unfamiliar. When it comes to buying and selling real estate, there are a few things that can happen during the process that can make it more challenging.
One of these is when the buyer has the right of first refusal, also known as a “first right of refusal” or ROFR for short.
The possibility exists that when you are looking on your favorite website, you might find it “marked” as having a first right of refusal.
Whether you are buying or selling a home, it is essential to understand the ins and outs of a ROFR. Let’s have a look at right-of-first-refusal listings and how they can impact your ability to buy a property.
What is a right of first refusal?
A right of first refusal provision gives someone the ability to buy a home before the seller accepts any other offers. A common example would be if you have been renting a home and stated to the owner upfront your interest in purchasing when the lease ends.
It could be done instead of having a formal rent to own agreement. Instead the owner grants the tenant a right of first refusal.
A seller can still list their home for sale as they normally would and try to get the best terms and conditions. Once an offer comes in on the property, the owner would be obligated to notify the person holding the first right of refusal.
The ROFR holder would then have to decide whether or not they want to move forward with the purchase. If you would like to move forward, you can then make an offer.
If you decide against making a bid, the seller is then able to negotiate with any other potential buyers.
What are common uses of a right of first refusal?
The most common example of an ROFR is the one given above where a tenant potentially wants to purchase from their landlord. Another time where rights of first refusal are common is between family members or close relatives.
Someone may want to keep a property within the family. The best way to increase the chances of that happening is with a first right of refusal.
A right of first refusal in real estate is also common within condo associations. They will put language into the association’s governing documents stating that any unit that comes up for sale will have an ROFR by the board.
The clause is used to protect an association and it’s members from a homeowner who may fall on hard financial times and needs to sell their property under market value.
How does a right of first refusal impact a seller?
As a general rule, a right of first refusal does not carry any significant benefits to a seller and could potentially make things more difficult.
After all, the seller needs to notify a third-party of their intentions and wait for their decision. Sometimes in real estate time is of the essence. Losing complete control over a situation isn’t a good thing.
However, on the flip side if it is a buyer’s market, it could put the seller in a position to negotiate a better deal. Since the ROFR was granted before the home was listed for sale, the owner could potentially convince the holder to pay more than the current market value.
Does granting a ROFR make sense?
When creating any agreement you want to make sure the terms are acceptable. Right-of-first-refusal clauses can vary on how they are written.
For example, how long will it last? How quickly does the ROFR holder need to respond? Are there any exceptions such as a buyer who is willing to pay cash?
Whenever you are considering accepting a first right of refusal it is highly advisable to speak to a qualified real estate attorney first. Agreeing to something that could hurt you financially would be a significant mistake!
A real estate attorney can ensure the language does not create an adverse situation. You should now have a solid handle on a first-right-of-refusal.