Q & A Saturday – What is The Right of 1st Refusal?

Welcome to our Q & A Saturday video.

In these Q & A Videos we will answer your questions about real estate.  Any real estate related topic from questions about selling your house, buying a house, real estate investor questions, land lording questions, local market questions and many others things are all fair game. 

Today’s question is “What is The Right of 1st Refusal?

Real Estate Contract - Right Of 1st Refusal Clause

In this video Shaun talks about what a right of 1st refusal clause is and when you might see it when selling your home.

 

Some of the main points covered in this video are:

1)      What is The Right of 1st Refusal clause?

2)      When a retail buyer might use it.

3)      What some of the advantages are of using one are.

4)      What some of the disadvantages are of using one are.

5)      Why an investor might offer one.

 

A right of 1st refusal clause is not a widely seem technique in real estate transactions.  However it is not particularly rare either so it is good to understand what it is and when it might come up.  When dealing with real estate agents and transactions on the retail market you do not see it very much.  When it does come up is when a buyer puts in an offer with some other contingencies that the seller is not crazy about.  When this happens they might agree to add this type of clause to smooth out the differences.  Basically what a right of 1st refusal does is add a clause saying that the seller can still accept other offers on the property but the buyer has the right to exercise their right to buy the property, but will waive the other contingencies.  For the seller it gives them the ability to accept an offer that they mostly like without being totally bound by a contingency that might not play out.  The most common situation to see this is when the offer is subject to the buyer selling another property.  The buyer is helped since their offers may otherwise be rejected since people will worry that this contingency will not be met or at least not met for a long time and it will drag out the process. 

While the exact clause can take any form usually the basic form will state that the buyer has the right of 1st refusal and spell out what they need to do to exercise that right.  Usually it will involve waiving the clause in question and often all other contingencies.  Also the usual consequence will be forfeiting the deposit if they cannot buy the property, which this means as a seller you would want a pretty sizeable deposit when accepting this kind of clause in this type of situation.

With an investor the situations are usually a little different.  Most of the time this will only come up in situations where they offer an Option or Lease Option type of contract on the property.  In these cases they are only asking for the right to buy the property already.  With a lease option often a seller might want to just sell buy is willing to rent if they eventually can sell.  Sometimes a right of 1st refusal might be given so they can continue to try to sell the property while the investor is looking to secure a tenant for the property.  Usually if the seller gets another offer prior to the investor fully executing their contract they can sell it unless the investor is willing to execute the deal and pay the rent without having a tenant in place.  The less complicated situation would be an option to purchase where the investor might not have the cash on hand to purchase the deal but wants to have a contract on it to be able to try to secure financing, or a partner, or a wholesale buyer or just do more complete due diligence on the property.  In these situations the buyer would have to decide if the seller had another offer if they felt it was a good enough deal that they would be able to solve these problems quickly and exercise the option or if they will just let it go.   

 

 

Do you need to sell a house in Massachusetts or New Hampshire and not sure if you want to entertain a right of 1st refusal clause?  If you would like to sell your home fast and hassle free schedule a consultation with us today.

 

Hope you enjoyed the video and leave any other questions you have about the topic below or any other topics you would like to see covered in future videos.  I encourage anyone that has things they would like to talk about to let me know what they are.  You can always fill out a contact us form here and put Q & A in the subject, just leave a comment with your questions below here, send an email to info@masshomesale.com, or post it on our Facebook page or Twitter account.

 

Some useful resources:

–          Our Video on using What is a Lease Option.

–          Our Video on using A Real Estate Agent when buying.

–          Our Video on Selling FSBO.

–          If you want to sell a house in Massachusetts or in New Hampshire we can help.

 

 

  

 

 

(Image credit: Real Estate Contract via setestate.net)

 

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