It is a buyer’s market and you are eager to sell your home. It has been on the market for six months. You finally get an offer. However, this buyer requires selling his home first. Your Realtor tells you this is not a problem because there is a contingency clause you can put in your contract and that is “Seller will offer Buyer a 24 hour First Right of Refusal”. The offer can be extended to whatever period you wish to provide to your buyer.
A First Right of Refusal is simply an agreement between a seller and a potential buyer allowing the buyer the option to purchase the seller’s home in a specific time period by matching any other offers. It protects the buyer from losing the deal to another seller, temporarily until the buyer decides on what to do. If an offer comes in, the buyer would have the right to refuse the offer, to match it or walk away from the deal.
For example, Buyer A offers $350,000 for your property. You are advised by your Realtor that you should sign the contract along with a 24 hour Right of First Refusal clause included. The Realtor continues to advise you that this doesn’t take your home off the market. He tells you that if another buyer comes along before your original buyer can close on his home and offers the same price or more, you can give your original buyer the option to match the offer and close within a specific time period. Sounds good, right? Not necessarily.
Now, does this protect the seller? No, because if the buyer can’t sell their home in the specific time period that your Realtor writes in the contract, they can just walk away from the deal. Your Realtor will say it is still on the market so you have nothing to lose. Hmmm, let’s see what we have to lose. One negative to this is, you cannot just take the new offer and run with it because Buyer A has a Right of First Refusal clause in his contract. You have to go to Buyer A and let him know about the new offer. Buyer A must now either meet the offer or lose the deal.
Sometimes, timing is of the essence in a contract. This is another way of saying the amount of time it takes for an answer is important to the deal. If you did get a new offer, while you are waiting for the Realtor to track down your original buyer who has the First Right of Refusal, the second buyer could lose interest if he found something better in the interim. He can then revoke the offer. It’s not a contract until both parties sign.
Here is another negative to this which your Realtor won’t tell you. The Realtors have a code of ethics that they must further follow when it comes to the MLS (Multiple Listing Service). They are required to put this information of the condition in the description of your listing. It can read like the following: Pending – 24 hour first right of refusal. Your Realtor will tell you that it is still on the market because it is an active listing. However, when other interested Realtors who will really be the ones to show your home read this, you can be certain, your home will barely be shown. Most Realtors do not want to be bothered with a 24 hr first right of refusal. With that, they typically will bypass showing your listing to their potential buyers. They prefer show listings with no contracts on it. They want a seller that can react swiftly to their prospected buyer’s offer. Let’s face it time is money. What do you do?
In a buyer’s market as we have today, there’s not too much you can do but be aware of this if you are offered this contingency. I mean let’s face it, you don’t need to restrict yourself when it takes 6 months or more to sell your home. However, you absolutely want to ensure the buyer that you are giving this clause to has pretty much gone through the loan process of being qualified for your home. And their home should be listed with a Realtor for maximum exposure. Don’t allow any other contingencies if you need to have that First Right of Refusal clause in there because it can complicate things. If the buyer requires an inspection, let them do it but if you put it as a contingency, then you might have to wait for that inspection to go through before any potential offers can be looked at. And again, you could lose out on a clean contract with a new offer.
