What Is Right of First Refusal?

If you have a real estate right of first refusal (ROFR), it means that you get first dibs when the owner wants to sell their property. The owner must approach you first with an offer to sell before they can entertain and negotiate with other potential buyers.

Once the owner informs you of their plan to sell and how much they are selling, you must inform them if you accept or decline the offer. If you opt for the latter, it is only then that they can deal with other interested parties.

Who Qualifies to have Right of First Refusal?

a. Former Owner
Sometimes, former owners of a piece of real estate want to enter a ROFR agreement with the new owners. This gives the previous owners the opportunity to buy back the property when they are more financially capable.

Another scenario is when parties have sold an adjoining portion of their land to someone else. When the former owners have the right of first refusal, they can purchase that area and avoid having to deal with unwanted new neighbors or unattractive or undesired new structures next door.

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b. Tenant
Some lease contracts include a ROFR so that renters have the option to buy the property they are leasing if the owner wishes to sell. This can be advantageous for tenants since they can save over time in order to come up with enough money to purchase the real estate they are leasing.

c. Family Member
This usually happens when another member of the family wants to buy the property.

Is it favorable to the buyer or seller?

For tenants or potential buyers, a right of first refusal means they must be prioritized when the property is put up for sale. Since this agreement is included in contracts from the get-go, they have enough time to save up and improve their credit score so they are in a more favorable position when it is time to buy.

However, one disadvantage is they may have to meet the buyers offer sooner than they planned. And if they do not have enough funds at that time, they can lose the deal or might have to look for quick financing options.

For sellers, a benefit is they can convince the buyers originally interested to purchase the property for more than its current market value.

However, it does limit their options when it is time to sell as they must prioritize the party with the right before being able to entertain other interested buyers. They could end up losing better offers.

Right of First Refusal Contracts

ROFR agreements can be quite tricky and become subjects of disputes when handled improperly. In order to ensure this type of contract is beneficial, make sure that both parties obtain legal advice and set the specific terms for their agreement from the get-go.

 

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