What Is the Right of First Refusal? What It Does and Doesn’t Mean

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Selling your house or even buying another house is one of the most stressful events in life. Uncertainty about the future can contribute to that stress, as you do not always know beforehand how much your property will sell for, or whether a seller will accept your offer among other potential buyers.

A further potential stress perpetrator is the right of first refusal clause. This is true for both parties involved. Stress comes from a lack of clarity and understanding around this clause which can lead to a big disappointment.

In this article, we’re going to clear the fog of confusion and help you see what is the first right of refusal and what this clause can mean for you.

Right of First Refusal Definition

The basic concept of this clause is that the seller agrees with another party that they have the first opportunity to buy the property at an agreed price. Once the clause has is active, then there is a defined time limit in which the potential buyer must make a decision. That is to proceed with the purchase under the agreed terms, or to withdraw and allow the property to be offered to someone else.

You can use this clause when a house isn’t on the market yet. When someone expresses an interest in a property that is not on the market but has the potential to enter the market at a later date, this clause will allow a specific potential buyer to have the right to buy that property at an agreed price before anyone else.

Considerations for the Seller

If your the seller, what does the first right of refusal mean for you? It means that you’ll be tied into one specific potential buyer. Of course, that will be based on an acceptable price which is likely to be your asking price.

This may feel as though you have some security but it doesn’t come without cost. It prevents you from having the freedom to offer your property to someone else. If someone wants to offer you more, then the terms of your right of first refusal clause will prevent that.

Considerations for the Buyer

If a seller is willing to enter into this type of contractual clause, then right of first refusal real estate may be to your advantage. That said, it is best to reserve the use of this clause for properties you’re really serious about buying. Once the clause is active, there will be a limited period of time in which you must act upon it.

This clause will also potentially prevent further negotiation on the price. This could be risky if the market value of a property plunges due to economic or other factors; you’ll still have to pay the contractually agreed price.

Getting the Balance Right

In this article, you’ve read about the right of first refusal and what it may mean for you as a buyer and a seller. The takeaway message here is that it should be viewed as a tool to be used carefully and only when you’re fully aware of the implications for your situation.

This clause may sound good but be careful it doesn’t backfire. You can read other informative articles that fit your lifestyle and interests on our site.