In a hot real estate market you'll often find unique contingencies, addendum's and clauses that can alter the traditional aspects of a purchase and sale agreement. The Right of First Refusal is one of those types of documents that you're likely to see in a variety of different markets.
The right of first refusal, also called a kick out clause, is typically given to buyers that have proposed a contingency in buying the sellers property. This contingency is usually set on their home selling before they can close on the new house. Often times, taking this type of contingency is of great risk to the seller as the home needs to be pulled off of the market waiting for the other home to sell. The right of first refusal is a unique document in that it allows the seller to keep the property on the market waiting for another offer while the buyer strives to sell the property as quickly as possible. If the seller gets another offer before the buyer's home has sold, the seller offers the buyer a "right of first refusal", meaning they will give the buyer anywhere from 24 to 72 hours to pull the trigger on the sellers house otherwise the earnest money will be returned to the buyer and the seller will take the backup offer. This really is a win-win for all as the seller can keep the home on the market and active in the buyers can basically put a "hold" on the property they're trying to buy until their home sells. Really the only drawback is that if the seller does receive another offer in the meantime and that second buyer cannot wait the timeframe needed for the first buyer to make a decision on the right of first refusal.
Often times this is a great marketing tool for buyers to use if they plan on selling another property. They can find a home, ask about a contingency clause and then put in a right of first refusal, allowing the seller to keep the home on the market. If the buyer's home sells, then the buyer can follow through with purchasing the new home. If the home doesn't sell in the seller receives a new offer, the buyer can cancel the previous offer and either way to their home sells or find a new home to place a similar offer on.
As a seller, there are certain things you need to look for in this type of clause. You want to know what the buyers willing to pay for the home, which is very standard on most purchase and sale contracts, you need to know if the buyers going to have a home inspection shortly after the approval or if they are waiting and tell their home sells, when the proposed close date is, how long the buyer will have to respond should the seller receive another offer and if the buyer currently has their home listed on the market.
If the buyer does not already have their home on the market this should be a pretty big red flag that the buyer might not be as serious as they should be about selling and purchasing a new home. However, this is where a buyers agent in a listing agent can really do their due diligence. They can communicate back and forth so that time frames, contingencies and all documents are clearly understood.
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While this type of offer is not the norm it also should not be entered into lightly. In a hot market like the Southeast Florida real estate market, houses can be selling quite quickly but this type of offer should only be accepted on a home that is having trouble selling. This might be a short sale home, foreclosure, damaged home or simply an undesirable location. If the seller is having trouble selling their home the buyer might as well. It can leave a lot of unanswered questions as to what type of buyer the seller is dealing with. Is the buyer willing to price the home correctly in order to get it sold quickly? Is the real estate agent listing the home marking it properly?
This type of offer is not common but it is a welcome type of offer if the home has not sold in a timely matter or parties or buying and selling at the same time. These simultaneous closings can get confusing but having a seasoned and qualified real estate professional can explain all of the pros, cons, disadvantages and benefits to a right of first refusal clause.
There are other types of right of first refusal such as condominium associations, which can reserve the right to purchase a condominium from a homeowner that might be selling to maintain power over the purchase. This clause is also helpful in land between the homes when the owner of a subdivision sell that particular lot to a homebuyer and there is a vacant lot adjacent to the property. Occasionally, a homeowner will grant a right of first refusal to the person has already purchased the property.
Pretty much the only disadvantage to this situation is if the first buyer agrees to go through with the purchase before actually selling their home. If everything looks good and the buyers willing to take that risk, you could end up going to closing with some financial issues on the buyers end.
For more information on the right of first refusal, kickback clauses and other tactics to buy and sell real estate with expert negotiation tactics, give me a call today! Let's do this.
Thank you to our guest writer this month, Joe Hayden with Louisville real estate. Joe knows real estate and his area. For more tips on buying and selling browse this website or visit Joe.