Buyer is asking for a right of first refusal on the remaining acreage that is not for sale.Pros and Cons?

In Selling Property - Asked by Frank C. - Mar 20, 2012
Report Abuse
Answer this Question


Rob M.
Lender/Mortgage Broker
Houston, TX

Buyer could hold up potential sale in the future due to indecision or other stalling tactics. This could result in another buyer walking away from a never ending option period. Make sure, if you are going to do this, you have an attorney draft the paperwork. Amongst other things make sure to include a time frame and rules for this "first refusal".

Mar 20, 2012
Report Abuse
Randolph G.
Boca Raton, FL

In protecting the owner, I believe that rights like this should not be given for free. I always believe that there should be a price paid by the party gaining the right.
The option should have a very short window of opportunity, say only a few days. The right of first refusal should be for the same price and at the same terms as the contract. If a buyer offers all cash, and a short closing time, then the option holder must be held to the same terms.
The buyer should realize that even without the option, he always has an opportunity to make an offer. And he should remain friendly with the owner, letting him know that he still would like to someday own the balance of the land. If the land ever comes on the market for sale, this buyer will have the opportunity to buy it without an option.

Mar 24, 2012
Report Abuse
Chris S.
Coeur D'alene, ID

All pros for the buyer, all cons for the seller.
Make sure that if you grant a first right that you give a very specific response time (5 -21 business days max).
Remember that time kills all deals so be aware that while you wait for this buyer to respond, your new buyer may very likely walk away!

Aug 1, 2012
Report Abuse
Scott R.
Laguna Hills, CA

If you are going to agree to this at all (not recommded as I will explain), negotiate a Right of First Offer instead of Refusal. That way you are simply obligated to have the other party the first party you negotiate with when you decide to sell the property. It is simpler that way and less cumbersome.
Right of First Refusal requires you to either pre-negotiate a price and terms, OR you will have to put the property on the market for sale, find a buyer and negotiate terms, then your party above with the refusal right gets to choose whether or not they want to step in and take the deal ahead of the buyer you just negotiated with. It is a handicap on negotiating a deal as you should have also told a buyer about the Right of First Refusal to begin with, which may make him not want to go through the process to begin with. It is a pain for the seller and can impact the willingness of other parties to negotiate.
With a Right of First Offer it is cleaner as you can get the burden out of the way as soon as you decide to sell by making a good faith effort to negotiate terms. If you do not come to terms, you are free then to market and sell the property and the right goes away. Just make sure how you setup the contract so it is clear when your obligation to negotiate has been satisfied (such as using a time limit).
Hope this helps.

May 16, 2013
Report Abuse
Lee T.
Marina Del Rey, CA

If you ever have a prospect interested in buying a property with a First Right of Refusal on it, you have a delicate situation that you need to address. When talking about a potential sale of a property, a First Right of Refusal is an agreement that gives someone the right to purchase a property at the exact same terms and conditions contained in an offer that the owner has received (and wants to accept) from another buyer.
Build Your Real Estate Business While On-The-Go!
In this situation, the owner is first obligated to offer their property for sale to the holder of the First Right of Refusal at the exact price and terms contained in the offer they've received. The holder of the First Right of Refusal can then either agree to purchase the property under the same terms and conditions, or decline and allow the other buyer to move forward and complete the purchase.
This is very different from someone having an option to purchase because with a First Right of Refusal, the owner has no obligation to sell their property to anyone at a predetermined price. The ability to exercise a First Right of Refusal is only triggered when an owner receives an offer to purchase their property that they would like to accept. The property may be listed at the time, or the owner may have received an unsolicited offer to purchase without ever listing their property for sale.
When a First Right of Refusal is given, it's normally given to the tenant occupying the property, but occasionally it can be given by an owner to someone else. It's normally negotiated in situations where the tenant feels they'd like to own the property someday, but the owner isn't interested in selling it to them right away.
So in activating the First Right of Refusal, a buyer submits an offer to the owner that's acceptable for the purchase of the property, then the owner presents the offer to the holder of the First Right of Refusal to see if they are willing to purchase the property under the same price and terms. If they're not, the owner will then proceed to sell the property to the original buyer who submitted the offer.
The problem here is if you're the agent representing the buyer submitting the original purchase offer to the owner. If the First Right of Refusal is exercised, you now have no transaction to get paid on unless you have a listing on the property. This is true even though it was your client's offer that caused the sale to take place. So in effect you've done all the work that caused the seller to sell their property, and you've saved the seller from paying you a commission in the process, too.
So what's the ideal solution here?
say something like this to the owner:
"The only way that I'll attempt selling your property is if you sign an agreement stating that you'll pay me a 6 percent commission if your tenant exercises his First Right of Refusal to buy it. Whether or not your tenant exercises his First Right of Refusal, it's my having produced the offer from my buyer that's creating the sale, and I should be compensated for it."
Make sure the owner will pay you a commission if the other party exercises its First Right of Refusal when you submit your offer, and you'll go home with much more than a "thank you" from the owner at the end of the day.

Jul 11, 2013
Report Abuse

Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.

Ask a Question

Post Question