If you rent a house right now and think you may have an interest in buying it, consider a right of first refusal clause in your lease. This clause gives you the first chance to buy the home. If any other interest buyers come through, you have the first right to the home.
How Does the Right of First Refusal Work?
The right of first refusal is an agreement. It must be in writing. It gives the interested buyer the right to first ‘dibs’ on the home. The seller can put the home on the market and even take other offers, but the person with the right of first refusal gets to decide if he or she wants to buy the home. If the person with the agreement doesn’t buy the home, then the seller can move onto other buyers.
Who Uses the Right of First Refusal?
Typically, a right of first refusal is between a landlord and renter. There are a few other situations where it may come in handy though:
- Family member-to-family member – Sometimes family members want to give other family members the chance to buy their home first. Parents selling a home to their children or grandparents selling to grandchildren are two good examples. The contract gives the named family members the opportunity to buy the home before anyone else.
- HOAs – Sometimes HOAs require a right of first refusal. This puts the HOA in charge of who buys the condo. Some HOAs put this in place to prevent underselling the property. HOAs are limited in how they handle this though, as they risk being accused of discrimination.
Is it Good for Buyers?
Buyers that have the right of first refusal have the advantage of having first say on the home. But, it can be bad too. Buyers have to be ready at any point for the landlord to sell the home. If the buyer isn’t prepared (doesn’t have the money), he or she may not be able to execute his or her right.
Sometimes buyers get lucky enough to get a good price for the home. If they negotiate the sales price when they sign the rental contract, there are no other bidders driving the price up. Without competition, sellers may be willing to accept the lower price.
Is it Good for Sellers?
Sellers often get the short end on this one. Because they can’t take other offers, there’s no competition. There’s no one driving up the price. If the seller prematurely negotiated a price for the home at the signing of the contract, they may get less than the current market value for the home.
Should you Sign a Right of First Refusal?
The right of first refusal isn’t a one-size-fits-all approach. Just like all sales contracts are different, so are rental contracts. Work with your attorney and/or real estate agent to determine the right steps. Your attorney can assess the contract. He can determine if the price and terms are fair and if it makes sense to sign the contract.