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Posted by Suzanne on October 04, 2005 at 21:31:54:
Hello,
I have a property that I’m about to wholesale I was contacted by one investor who asked if they could have 1st right of refusal. I have looked this up and am still not clear on what exactly the benefits are of doing this?
Does this just mean they are allowed to make the 1st offer and also have the right to counter higher offers? Any info to clear this up would be appreciated thanks!
Posted by Natalie-VA on October 06, 2005 at 14:11:11:
Suzanne,
This was a good question. I’ve also seen it used in some other ways…sometimes there might be a condo complex where sellers must offer it up for sale to the other owners first. This means the other owners have the 1st right of refusal.
I’ve also seen it used where the buyer who wants the 1st right of refusal might not be ready to close. It works like this:
Mr. Seller has his home on the market. Mr. Buyer wants to buy it, but wants to sell his home first. He doesn’t have to sell his home first, but he want to so that he can get more favorable financing on Mr. Seller’s home. Mr. Seller doesn’t want to accept a home sale contingency. Mr. Seller and Mr. Buyer ratify a contract with all the usual terms with the addition of a 48 hour first right of refusal to Mr. Buyer.
This means Mr. Seller can keep marketing his house. If he gets another buyer, he must contact the original Mr. Buyer and give him 48 hours to remove his contingency.
Basically it’s kinda sorta like a reverse option. Since that right has value, then I need to pay you for it. It should also be in writing.
Basically how it works is that I don’t make an actual offer and you are free to market as you like. When you get an offer that you want to accept, I’ve bought the right to match that offer (or refuse). If I match it, you sell to me. If I refuse, you go ahead and accept the other offer, and sell to that party. Either way, you keep my money. It’s also known as a preemptive right, meaning I get to preempt your contract.
So the next time someone says to you that they want a right of first refusal, just stick your hand right out. “OK, so what’s it worth to ya?”
There is another definition that basically says you have to hear my offer first. You don’t have to accept it though. I really don’t understand what kind of advantage that gives me. I wouldn’t pay for that.
Posted by Mary in CA on October 05, 2005 at 16:07:15:
Way back when I was in a real property class we discussed these as deal killers.
Would you make an offer on property if you do all the work and someone else could walk in and take the property on your negotiated terms?
They were usually used when someone gave a piece of property to someone . . . i.e.
To Lincoln School District for use as an elementary school, but should the district cease using the property as an elementary school, grantor has the right of first refusal to buy property. . .
I never heard of a third party butting in on a deal with such a request. Odd.
Posted by Kristine-CA on October 05, 2005 at 24:09:15:
You know, I’m not sure exactly what it means either. But when investor
buyers have asked me this, I have understood it to mean they want to
be called first–that they want to be able to say yeah or nay before you
ask anyone else. Oh, there’s nothing investors like better than a
committment from a new wholesaler–they just love to get to you
before anyone else does. And what’s in it for you, I’d
ask? Seriously, ask the investor what he can do for you if you give him
first right of refusal. If the investor isn’t offering you anything in return
for this right of refusal, this should be your first clue that this
investor thinks they’ll get a very good deal from you.
I wouldn’t make such a promise and don’t agree to give anyone a deal
before anyone else if they haven’t bought from me before or if I have
no business experience with. Why would I promise anything to anyone
when I have no idea if they can come through? I suggest telling the
investor that you will let them know what you have when you are ready
to offer it. And that first right of refusal comes after developing a
working relationship.
I have two buyers right now that will take anything I have at
my asking price. Both of them want to be called first. I alternate
between the two, giving them “first right of refusal,” but they never
refuse. Kristine
It sounds like you are “there”.
Congratulations.
Keep in mind, markets change and if you are to remain competitive, you have to change with them.
You’ve done well.
Kristine