ROFR (Right of First Refusal)

Introduction:

Every real estate professional should understand the concept of the Right of First Refusal (ROFR). 

This clause, commonly found in leases, purchase agreements, and other contracts, grants specific parties the right to make the first offer on a property when it becomes available for sale. 

By familiarizing themselves with ROFRs, real estate agents can effectively work with buyers and sellers while navigating these clauses.

Key Takeaways:

  • The Right of First Refusal (ROFR) in real estate grants its holder the first opportunity to make an offer on a property when it enters the market.
  • ROFR can benefit renters, buyers, and property owners, but it comes with advantages and disadvantages for each party involved.
  • ROFRs have specific timeframes, expiration dates, and contingencies that must be considered and followed.

How it Works:

A contract or lease agreement that includes a ROFR gives the holder the privilege of being the first to make an offer on a property when it is listed for sale. 

The seller is obligated to prioritize the right holder’s offer and may include a specific sale price in the clause.

Meanwhile, the right holder, who cannot be the property owner or lien holder, must notify their intent to purchase within a specified timeframe.

Key Components:

  • Timeframe and Expiration: The Right of First Refusal clause usually includes a timeframe for the owner to notify the holder when the property is for sale, as well as an expiration date that determines how long the clause remains valid.
  • Seller’s Rights: While a seller must prioritize offers from the right holder, they can still list the property for the price they believe it is worth. If the seller receives an offer from another party, they may choose to sell to that party instead, but the right holder has a limited period to match the offer and proceed with the purchase.
  • Holder’s Rights: The right holder benefits from the opportunity to purchase the property before it hits the open market. This can save them from having to move out as a renter or provide a chance to buy at a potentially lower cost. The predetermined asking price established in the agreement can be advantageous depending on market conditions.

Benefits:

  • Opportunity to Buy: The primary benefit of a Right of First Refusal is the ability to purchase a property before other potential buyers have a chance to make an offer.
  • Price Advantage: If the market value has increased since the predetermined asking price was established, the right holder may benefit from purchasing the property at a lower cost compared to current market value.
  • Protection: ROFR provides protection for renters who wish to stay in a property or for family members who want to keep a property within the family.

Takeaway:

The Right of First Refusal (ROFR) is a significant clause in real estate that offers strategic advantages to both buyers and sellers. 

For sellers, it creates a safety net, ensuring there is a potential buyer before the property is marketed more broadly. 

For buyers or renters, it provides a unique opportunity to secure a property, often at a favorable price, before it becomes available to the wider market. 

However, the complexities and specific legal implications of ROFR clauses necessitate careful consideration and understanding. Real estate professionals must be adept at navigating these clauses to protect the interests of their clients. 

ROFR not only influences purchase decisions but also shapes the negotiation dynamics in real estate transactions. Awareness and strategic use of ROFR can lead to advantageous outcomes in the dynamic real estate market.

Disclaimer: The information on this website, including glossary definitions, is for educational and informational purposes only and not intended as professional advice. While we strive for accuracy, we make no guarantees regarding the completeness, reliability, or timeliness of the information provided. We are not liable for any loss or damage arising from your use of the site. Investment decisions in commercial real estate should be made based on individual due diligence and professional advice. Laws and regulations are subject to change; always consult legal and financial experts before making decisions.

Sources:

https://www.nar.realtor/residential-real-estate/right-of-first-refusal