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Refusal in Real Estate

Q: What is first refusal in real estate, and how does it work?

A: A first right of refusal is a placeholder for a party to have the first option to negotiate and potentially purchase a property. It is sometimes called a right of first offer as well. A buyer has the right to say whether they are interested before all others. And the negotiations begin there. If not interested, then it goes to others.

If someone has had their eye on a property and would like to be the first in line to consider it if it ever came on the market, they can purchase this right from the owner. It is a legal right that can be recorded and the amount to buy this option will vary depending on the amount of potential interest the property may have (Supply vs Demand).  If the property has a limited supply such as waterfront or on a golf course, for instance, this might be invoked.  This gives the buyer a huge advantage in pursuing the property as not even a relative can be considered first.  He does not have to continually watch the property status and possibly miss his opportunity. 

Oftentimes the seller might accept an offer that has a major contingency such as a house selling within a month.  But they may want to accept an offer from another buyer if it is better for them than waiting for that month.  In that case, they may give the seller a 48 hours first right of refusal wherein if they receive a better offer, the first buyer has 48 hours to remove their contingency and perform or the other buyer goes into 1st place.  This puts the seller in a great position as he knows he may be open to receiving a better offer and not end up down the road a month, only to find out his buyer cannot perform.

It is important that someone who understands contract law is involved to set this up when accepting the contingent offer and proper forms are used so that the seller does not inadvertently sell the same property to 2 buyers at once.   It is highly recommended that a professional be involved.

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