Forgotten Real Estate The Right Of First Refusal

Real Estate Agent with Prudential Gary Greene-Friendswood

I had to look up the term "The Right of First Refusal" after a seller's agent offered it as an option.  I totally understand it after reading this blog. 

Original content by William J. Archambault, Jr. 1retiredsage

Forgotten Real Estate The Right Of First Refusal is a consumer's tool you may never have heard of.

The right of first refusal, is a type of option agreement, unlike a normal option, the purchased right to purchase, where the seller is obligate to sell for a fixed price if and when the option is excised. The right of first refusal, neither obligates the seller to sell or sets a price if the seller agrees to sell! The right of first refusal, oblates the seller to offer the holder of the right, the opportunity to buy the property for and on what ever terms the seller is willing to accept from another willing buyer.

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 a 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 tenet in a commercial project.

The property would add value to your existing property.

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

The seller doesn't want to sell today.

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.

     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 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 heir 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 is only two determents to a seller granting a right of first refusal.

     It will ad what ever time allowed for (normally 10 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.

Forgotten Real Estate. 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.


William J Archambault Jr

The Real Estate Investment Institute  832-259-7078 or 702-516-1569  Back Cover One House At A Time http:www//   

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

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Tina Parker, Realtor

Prudential Gary Greene-Friendswood

Call Tina for professional service with a personal touch- (832) 285-7475 

© 2009 Tina Parker, The Brian Worrell Team, Realtors in League City, TX - 832-285-7475. All Rights Reserved.  Prudential Gary Greene, Realtors.


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