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Real Estate Lingo: Right of First Refusal

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Tuesday February 4, 2020
Real Estate Lingo: Right of First Refusal

In negotiations, being first in line can be a huge benefit. This is even truer when it comes to having the first opportunity to purchase a home. This is where the “right of first refusal” comes into play; you should attempt to work that term into any lease or other housing agreement that you’re a party to.

The right of first refusal gives you the right to purchase a property before the seller is allowed to negotiate agreements with other people; this typically means before the seller can put it on the open market. Sometimes a seller will put their house on the market, but they’re still obligated to give the person with right of first refusal an opportunity to purchase the home. Assuming the person with the right of first refusal says no, the seller is now free to go about the process as they would in any other situation.

You typically see a right of first refusal clause in a lease between a landlord and tenant, agreements between family members, and agreements involving an HOA or condo association.
The main downside to holding a right to first refusal is that you might not be prepared to exercise that option since an owner could receive an offer on their property (thereby triggering your right to first refusal) at any time; if you can’t afford it, the opportunity has sailed.

There are also some risks to a seller when there is someone with a right of first refusal regarding their property. On the one hand, the seller may be able to negotiate a favorable price for their property (since the person negotiating for the right of first refusal obviously liked the property, otherwise they wouldn’t have negotiated for that term). However, if someone has a right of first refusal, that could also delay the process significantly – the person holding the right needs to waive their right (expressly or by waiting too long) before you can negotiate in earnest with another buyer.

At the end of the day, a right of first refusal, like most other agreements have pros and cons. On the upside, a seller has a good chance of selling their property quickly if someone was interested enough to negotiate a right of first refusal, but it can also cause a delay in an otherwise easy process.

At the Chernov Team, we understand knowledge is power, and knowledge of common terms in a contract is powerful knowledge indeed. At the Chernov Team, we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.

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