Right of first refusal? Any advice?

Question

Hi All,

I know a family friend who is older and wants to sell soon. I know about the right of first refusal contract but don’t know ins/outs. Any advice on how to approach the situation by getting ahead of when the person wants to put the house on the market?

Any advice or suggestions are greatly appreciated.

Wayne Brooks · Answer

Yeah, a right of first refusal doesn’t do much for you....it simply gives the right to buy it whatever someone else is willing to buy it for, and the owner is willing to sell for....no great benefit.

Don Konipol · Answer

@Rich Gallok

A right of first refusal is not an option to buy.  An option gives someone the right, but not the obligation, to purchase something if they are willing to meet certain terms specified in the option contract.  In real estate, the specified consideration is almost alway a price certain.  To abide by the terms of the contract, the seller must sell the property to the option holder if and when the option holder decides to exercise the option.

A right of first refusal grants the holder of that right the right to purchase a property at a price to be determined later, at the sole discretion of the seller, before the seller accepts the same offer from anybody else.  The seller is under no obligation to seller, he merely must allow the holder of the right the right to either match a price he is willing to accept from a third party, or to pass.  Rights of first refusal are normally found in single tenant lease agreements, where the owner of the business leasing the property wants the right to match a third party offer and purchase the premises he’s leasing if the landlord is selling to somebody else.  In these situations the tenant may be just as happy if he can sign a new, extended lease at decent terms with the purchase rather than having to purchase the property himself.  Sometimes the tenant does want the opportunity to purchase the property, but the landlord at the time the lease is signed doesn’t want to sell.

I can really think of a scenario in your situation where a right of first refusal has any benefit to the seller, unless you pay him a fee upfront for this right.  In that case you’ll be spending some money for a right that may play out to be worth very little.  A much better way to spend your upfront dime would be for an option to purchase, as explained above.  This should lock in today’s pricing, and if structured properly would be enforceable in just about any court.

Aaron K. · Answer

@Rich Gallo I'd just ask them to tell you when they want to sell.  Generally for right of first refusal you'd pay a premium, which I'm assuming you don't want to do.

Rich Gallo · Answer

All,

Thank you all for the insight. I am well aware that this would come with a fee. I have heard of some paying $500 to a couple thousand to lock in that right. I just wanted to know more about the legality of it and the process. Also, if anyone has had experience themselves with it.

From some info above it seems like it may be better to just stay on top of the owner/seller in regards to interest. Or the option to purchase that Don listed above.

Thank you again to all!

Michael Ablan · Answer

@Rich Gallo-  I'm not sure what incentive they'd have to signing this contract with you unless you were offering to pay them a fee for the option.

Joe Villeneuve · Answer

Are you referring to an Option to Buy?  You need to pay for that right.  Why would the seller give someone the exclusive right to buy (first right of refusal), without compensation for the person while in the process of getting that "exclusive right", is in fact holding the property hostage for the term of that Option.

Right of first refusal? Any advice?

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