Are you looking to purchase a home? Have you decided to make the seller an offer? Depending on when you submit an offer to someone selling their home, they may not even have a chance to read it. Because most states honor submitted proposals on a first come, first serve basis, the typical sale gets all but completed by the time an offer reaches a final agreement.
Because of that, you may find yourself wishing that you could get a guaranteed first crack at the property. Wouldn’t it feel nice to know that you got first dibs?
Not many people realize this, but there is a negotiation technique that may do just that! Referred to as Right of First Refusal, one party receives the ability to negotiate terms before the seller obtains any others!
But there are several considerations to mull over first, as well as some pros and cons. Or, if you need to meet with a professional, be sure to sign up here for a Home for Heroes’ affiliate specialist in your local area to go over these and other options with you.
The Right of First Refusal Real Estate
Even though buying, selling, or leasing property is often an emotional situation, it remains a typical business transaction at the end of the day. As such, it helps to know that there is at least one interested buyer and seller.
The Right of First Refusal is not exclusive to the real estate transactions. However, when dealing with homes, it solidifies the first party as the one that gets the first negotiation.
That applies to both a home sale, as well as a rental lease. In both cases, the selling or renting party must grant the buyer/renter the first chance to accept or refuse an offer.
If the offer is accepted, the sale or lease moves on towards the signing table, with the formal terms getting settled between the two parties. If they use their right to refuse the conditions, however, the seller is now legally able to present one to other interested parties.
In short, there is an explicit party who must get the first opportunity to agree or reject the sale. Following this rule’s use, you complete the transaction relatively the same as standard deals.
The Pros of the Right of First Refusal
The reason why many prefer an agreement entered with a predetermined potential buyer is that it helps to sell a property faster. That is especially true when the first buyer is actively pursuing a specific home.
However, a real estate transaction like this may also benefit the buyer. Considering they know that if no other offers are getting consideration, then they retain the ability to hold their submitted bid until they feel it’s an appropriate time.
That may help you succeed in delivering a lower bid in an uncertain market or give you the time you need to complete all your research. That can prevent a rushed negotiation where you don’t have all the facts.
Finally, a right of first refusal essentially grants the buyer and the seller two chances to come to agreeable terms. Considering that all additional offers from separate parties may very well fall through, a second chance is always beneficial.
The Cons of Issuing a Right of First Refusal
Unfortunately, as it is the case with any agreement, there are risks involved when pursuing this negotiation. And while knowing that you have an interested party on the hook is ideal, it doesn’t always work the way you may expect.
As mentioned before, some real estate negotiations become more emotional than rational. And when the buyer has the upper hand on the seller, they may use their newfound position against you.
If the buyer knows that a seller is desperate, they may intentionally drag their feet or force the negotiations to take longer to wear them down on price. Some real estate analysts suggest that a Right of First Refusal may limit the immediate market, although there is little more than anecdotal evidence to support that theory.
On the other hand, if the roles get reversed, and the seller knows a buyer is eager, they may do what they can to continue driving the offer as high as possible. That may even create a situation where they force negotiations past the listed asking price!
One consideration that can throw a wrench into plans is when the party with the first bid right passes away. A way to avoid any frustrations later on, make sure that that situation is already included in the negotiations.
Although a Right of First Refusal is a frequented selling option, there are other concerns you’ll want to consider first. For starters, if the offer doesn’t get worded carefully, it may lead to liability concerns for one, or all, parties involved.
Legalese aside, some organizations may create an implied preemptive Right of First Refusal. That is frequently an issue regarding dealing with condominium associations, co-op boards, and other organized residency groups.
Having a buyer that must submit an offer first is an ideal way to offload a property that is getting sold “as is.” Other sales may end when a buyer brings up repairs or structural concerns which may require addressing before the transaction finishes.
Lastly, the terms for completing the sale should explicitly get stated first. That includes whether or not the buyer will need a mortgage, or if a first offer must get submitted as cash-only.
Should You Agree to a Right of First Refusal?
While some would swear by these types of real estate transactions, not everyone remains comfortable with them. How should you know if it will help or hurt you?
In general, these negotiations open more cans of worms than offer solutions. However, when successfully navigated, it may achieve results you’ve never thought possible.
Before attempting that type of sale, you will want to speak with an experienced real estate professional in your area. Be sure to sign up here at Home for Heroes to talk with an agent who is committed to serving you and saving you money.