It’s Not Perverted The Right Of First Refusal

 

Just because you don’t understand a real estate tool doesn’t make it perverted!

Anything can be perverted especially by those who don’t understand it, or have the background to morally implement it.

Such is the case of the much maligned more often Forgotten Real Estate The Right Of First Refusal is a type of option agreement, a buyer's and seller's tool you may never have used.

Why would someone want a right of first refusal? Simple! They might want the property, if the seller wants to sell at a reasonable price. The most common uses are:

Tenants may negotiate a right of first refusal into a lease so that if the seller should decided to sell they have the first chance to buy and retain the property.

You want property for what ever reason, if the seller decides to sell.

You've rented a house for years, it's your home!

Your lease creates the value, such as an anchor tenant in a commercial project.

The property would add value to your existing property.

You can't afford to buy the property today or the seller doesn't want to sell today, but you want it if the seller later decides to sell it.

There are as many reasons to purchase the right of first refusal as there are to purchase real estate.

 

Like any other option there must be a consideration!

The potential seller must receive something of value!

The most common non-cash consideration is a tenant, where the right of first refusal is included in a lease to induce tenancy. Second is to induce a buyer.

 

I've used the right of first refusal to protect my clients when buying part of a sellers property, as in buying a farm where the seller retains the homestead, this gives the buyer the potential to reunite the property. In which case the original sale is the consideration. I've used it to get adjoining lots.

 

I've used the right of first refusal to induce private lenders io invest in a property. Where the loan is the consideration.

 

I've used the right of first refusal to induce investors into a minority position.

 

I've used it to sooth family members when one of the other heirs inherits a family home. Here the settlement is the consideration.

 

Why would a property owner sell a right of first refusal

on his property? Because they want the money! Because it cost them nothing, if they find a ready willing and able buyer, someone is going to buy.

What should be included in a right of first refusal?

You need to state the consideration and acknowledge it's recite.

You need to define the time allowed for the holder to exercise the option.

I've only once represented a seller offering the right of first refusal to the buyer, but I did once suggest offering one to a tenant for an extra $10,000.00 up-front.

 

From the buyer's point of view:

The right of first refusal must be recordable!

Although, since I want signatures when I'm presenting the offer and rarely have a notary and witness available I included a paragraph allowing for me to record a memorandum.

The right of first refusal must not be waived simply because it was not exercised on any given offer. If the proposed sale does not close your right continues.

(My REALTOR® friends are not going to like this one, but I'll make it up keep reading.)

Included that your right to purchase be based on the net proceeds from any offer, not including any concession, considerations, or brokerage fees! This will require the seller to exempt the holder on any future listing agreements, and accept any offers contingent on the right of first refusal not being exercised.

When you're acting as a REALTOR® I've included my commission, to be paid at closing if the option is exercised. (Am I forgiven?)

 

There are only two determents

to a seller granting a right of first refusal.

It will ad what ever time allowed for (normally 5 to 30 days) to the time necessary to close. The time to exercise the option starts when the fully executed offer is presented to the option holder.

 

Some buyers are going to be put off by the extra time necessary to know if they've got a deal, but in this day of short sales taking months for approval the option period should pose little determent.

 

There is one big incentive

, buyers knowing that a low offer will stimulate the option holder should make their highest and best offer.

The Right Of First Refusal is rarely seen today,

it may be forgotten professionalism by residential REALTORS® that's a shame. Every one renting a single family house should ask for it.

That’s as far as I wrote when I first published this several years ago. I’ve learned a few thing since. At the time my friend George Soto taught me that many Condos require the right of first refusal to go to the HOA or their assigns, not the ones I developed or worked on, but a real hassle in many areas.

 

Many agents see an existing right of first refusal as a personal affront! These same agents will work on a short sale where the seller can’t on his own deliver title, but see compliance with a right of first refusal as interfering with their business.

 

Many agents with little or no relevant experience think that a right of first refusal runs for 30, 60, 90 days or more, it shouldn’t! The right of first refusal only needs a few days for the holder to make up his mind, then gives the holder the same terms including time frames and contingencies as the offer that triggered it. The buyer’s agent wanting to clear a right of first refusal should get his act together an have his buyer make an offer that the holder can’t match.

 

When a short sale is involved included that the property is to be owner occupied to be acceptable to the seller’s bank, few investors (IE: HOA’s assigns.) can matach this. 

 

With any property a short closing will stop many!

 

There is always more than one way! That is if you know your subject! Let me state it simply, to preempt your sale the holder of the right of first refusal has to match your offer, you know it’s coming so you can prepare cutting down the time to below what the surprised holder can live with!

 

I’ve been harping for almost 40 years that listing agents should get a preliminary title report at the time of listing, it’s pure incompetence to be blind sided by publicly available information! Sellers rarely know about credit or other title issues like an existing right of first refusal. When you know about such an encumbrance it can be negotiated away, the buyer’s agents can at lease be put on notice!

 

Good people often see what they don’t understand as perverted, see the comments on my friend Jon's:

 

How To Keep The Virginity

　

 

Bill

William J Archambault Jr

The Real Estate Investment Institute

wja@reii.org      Cell 832-259-7078,      Houston 832-582-8415,       Las vegas 702-516-1569

             

From my past: GRI 1975, FLI 1974, Catalyst from a client 1974 an agent that makes things happen, REII, The Real Estate Investment Institute 1995.

©William J Archambault Jr   ©The Real Estate Investment Institute   ©REII