What Is Right of First Refusal in Real Estate?

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.

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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