4 min read Jan 15, 2024

What Is Right of First Refusal in Real Estate?

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Edited By

Carol Coutinho

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Editor
Edited By

Carol Coutinho

Editor, Houzeo
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Carol C. is a versatile editor, expertly refining real estate content with precision and creativity. When not exploring market trends, she is immersed in the enthralling world of the theatre.

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The right of first refusal is a clause that gives a buyer the option to purchase or lease a property before it is offered to other buyers. In the agreement, the seller specifies the asking price.

The duration of Right Of First Refusal typically lasts anywhere from 30 days to 1 year. During this time period, the buyer has to close the deal, or else the clause will expire. Sellers are also free to look for other buyers during this clause period.

⚡3 Right of First Refusal Features

  • When there are more houses available and property prices are low, it is ideal for the buyer to get a ROFR.
  • A ROFR doesn’t guarantee that a property will be bought. However, the buyer with ROFR is always on board until the deal is finalized.
  • The buyer and seller can look for another offer during the ROFR period. They can both move on with other offers if they are not satisfied with the deal.

How Does the Right of First Refusal Work?

The Right Of First Refusal is a legal agreement between the seller and the buyer. The document outlines the “dos & don’ts” the buyer and seller need to follow.

For example, if the seller receives a better offer, the seller has to inform the buyer with ROFR. If they fail to do so, the buyer with ROFR has the right to sue the seller.

The buyer can purchase or reject the property within the clause timeline. If the buyer is not able to meet the asking price of the property, the seller can move on to other buyers.

ROFR vs. ROFO

The Right Of First Refusal (ROFR) and Right Of First Offer (ROFO) share a similar concept, where the buyer has the upper hand in the deal. But they do have distinct methods and features.

Right Of First Refusal (ROFR)Right Of First Offer (ROFO)
ROFR gives the buyer the right to match the offer mentioned in the agreement or from other parties.ROFO allows the buyer to make the first offer.
ROFR is beneficial for the buyer.ROFO is beneficial for the seller.
The buyer has the right to accept or reject the deal.The seller has the right to accept or reject the deal.

Benefits and Drawbacks of Right of First Refusal

Here are some benefits and drawbacks of the Right Of First Refusal:

Benefits

  • Most of the ROFR agreement includes the price of the property, which can differ from its fair market value. The buyer pays according to the contract, even if the price goes high or low.
  • It provides a brief time to finalize the deal. In the meantime, the buyer and seller can look for other offers.
  • The buyer has control over the transfer process as they have the right to match the offer.

Drawbacks

  • The restricted price stops both parties from negotiating, which limits the profit for either buyer or seller.
  • The process makes the transaction complicated and causes uncertain delays.
  • The right to buy the property first doesn’t guarantee the purchase.

When Does the Right of First Refusal Apply?

The Right Of First Refusal in real estate applies in multiple instances:

1. Tenant and Landlord

In some situations, tenants want to buy the house they are living in. If they can include ROFR in the lease bond, the landlord would consider the tenant’s offer first.

2. Home Associations or Condo Boards

The Right Of First Refusal clause is present in Homeowners Associations (HOA) or condo boards governing documents. This gives preference to the HOA, or condo boards, over other homebuyers.

3. Family Member

If a family member wishes to buy the property, the right of first refusal prioritizes their offer. In case the buyers choose not to purchase the property, the seller can turn to other buyers in the market.

Bottom Line

The Right Of First Refusal is ideal when it is favorable and suits your situation. Moreover, if you are still willing to get ROFR, consider getting advice from your attorney.

Understand how much a home your going to buy is worth. If you feel the asking price is too high and you are looking for a new home, Houzeo can help you.

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Frequently Asked Questions

Is right of first refusal a good thing?

It typically depends on the situation and the parties involved. Generally, right of first refusal favors either buyer or seller. The market price can cut the seller's profit or make the buyer pay extra.

What is the problem with Right Of First Refusal?

The problem with the right of first refusal is that it can complicate transactions, cause delays, and limit the seller's options.

How can a tenant apply for Right Of First Refusal?

Tenants can get ROFR signed into their lease bonds. Whenever the landlord is up for sale, the tenant gets a chance to put in an offer first.

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