Hello Aubrey. The right of first refusal is a contract between a property owner and a third party that gives the third party the right to purchase a property when someone else makes an offer on a property. The contract should be specific as to how long the third party has to decide and how many times the third party may exercise the right of first refusal. For instance, let's say the property owner receives an offer and he gives the third party who has the right of first refusal notice of the offer. The third party decides that he does not wish to purchase. Then the buyer who made the offer decides not to purchase. Then another buyer comes along and makes a new offer. Unless the contract regarding the right of first refusal limits how often the third party may exercise the right to first refusal, the owner has to give the third party the option to exercise the right to purchase ever time an offer is presented, which can become a pain. The contract granting the first right of refusal should also specify financing terms and the third party should be required to show the financial ability to exercise the right to purchase the property. As you can see, it's important that the contract be drawn up properly. Otherwise, the right of first refusal can turn into a nightmare.

Wed May 7 2008, 20:49

Here is my experience with first right of refusal in CO and my experience is not to replace legal or agency advice that you should seek prior to writing a first right of refusal. The other answers given are applicable too so details to your specific transaction will change the exact meaning and terms of a first right of refusal.

The CO contract allows for a first right of refusal and has a provision in it to do so. Typically there are additional provisions to the first right of refusal. Here is a typical scenerio I've dealt with:

Buyer A wants to purchase 123 ABC ST. but for whatever reasons cannot fully execute the deal immediately. Buyer A approaches the seller with a contract that has a first right of refusal plus all other applicable terms in the contract including price. The seller may continue to actively market the property and if the seller receives another offer that is more appealing to the seller then Buyer A then has so much time, as stated in the contract, to either meet or beat the second offer. Otherwise, the seller may proceed with Buyer B.

Essentially Buyer A is being giving the first right of refusal to make good now on purchasing the property or they loose the option to buy the it to Buyer B.

Again, there are many different facets to a first right of refusal so getting professional/legal advice before writing one is your best bet.

Good luck!
Susan Walker

Wed May 7 2008, 11:35

When a Buyer makes an offer on a home for sale, and the offer is contingent upon the Buyer's home selling and closing before the sale of the new home, the Seller may accept the offer with the contingency by giving the Buyer a 48 hour of "First Right of Refusal." So if the Seller receives a better offer on the home and they would like to accept it, they would then notify the First Buyer that they have accepted another offer as a back up to the First Buyer's offer. The First Buyer then has 48 hours to remove the contingency upon the sale and closing of their home. If the First Buyer fails to remove the contingency within the 48 hours, the first contract becomes null and void and the second contract goes into first position. The First Buyer loses his contract and the Second Buyer now becomes the new buyer for the home.
It is very important that both Realtors and Sellers and Buyers are very clear in their communications so that no misunderstanding occurs in this process.

Wed May 7 2008, 11:28

Simply, it a term put in a contract between a person that owns an asset and might sell in the future. The terms of the right are spelled out in the specific contract that created it.
The price could be set at the time the right is created or it can be set to market conditions at the time the asset is offered.

Wed May 7 2008, 11:25

A first right of refusal basically means that the 1st buyer that wrote an acceptable offer on a property has the right to remove a contingency that they have in the contract if the seller should find a 2nd buyer who can close on the home without a similar contingency. For example: The 1st buyer might have written their offer contingent upon them successfully finding a buyer for their home. The seller may be willing to go under contract with the 1st buyer and wait for the buyer to find a buyer for his property. BUT, the seller may also want to continue marketing his home in hopes that a 2nd buyer happens to become interested in buying the property before the 1st buyer is able to get his property under contract. So, the seller would typically counter the original contract with what is known in the industry as a “first right of refusal” clause. The clause basically says that the seller can continue trying to sell their home and IF they find a 2nd interested buyer, they must give the 1st buyer written notice that they have found a 2nd buyer and that the 1st buyer must now either remove the contingency about selling their home or the seller will be able to terminate the 1st contract and then elect to sell to the 2nd buyer.

There are some real dangers in this for the seller if the original “first right of refusal” clause is not worded correctly. For example: the 1st buyer may simply remove the contingency relating to the sale of their home and therefore eliminate the 2nd buyer. BUT, if the 1st buyer can not actually financially qualify to close on the new home without selling their present home, the seller may just have lost both buyers by the time the closing day shows up. The clause should require the 1st buyer to be able to prove they can qualify to go to closing without selling their present home as a condition of being able to remove the contingency.

Be sure you are working with an attorney or a very seasoned Realtor if you are involved with a first right of refusal situation.

Wed May 7 2008, 11:24

Typically, you'll see a right of first refusal in a condo association (can be elsewhere too), whereby the homeowners association (HOA) must be notified when an offer comes in on a property that is for sale, and then the HOA has a certain number of days to match the purchase price and buy the property or waive the right. A right of first refusal can also be used between buyer and seller when, for instance, a buyer must sell another property to complete the transaction, a seller might agree to that "contingency" but keep actively trying to sell the property. Should the seller receive another bona fide offer, the buyer then has an agreed upon time to remove the contingency or terminate the contract, allowing the seller to enter into a contract with the new buyer. I don't know which Rifght of First Refusal you're referring to, but I hope that helps.

Wed May 7 2008, 11:17

Hi Aubrey. I can give you a good answer with experience to back it up...in Texas. I have no idea about your state laws. In Texas, the First Right of Refusal is drawn by an attorney and filed of record at the county courthouse. It essentially lays out the terms of the agreement. A basic example would be that owner Smith promises to notify prospect Jones if he intends to sell the subject property. If owner Smith receives an offer for the subject property that he wishes to agree to, he must contract with a contingency. He then notifies Jones and Jones has a pre-specified amount of time to make the purchase or lose the property to the other buyer. I have dealt with this situation twice and both times it worked smoothly. Good luck!

Wed May 7 2008, 11:07