Right of first refusal

What is right of first refusal?

Right of first refusal is a contractual agreement that gives a specific party the opportunity to buy property before the owner can sell it to someone else. Although the person or organization has the option to buy the property before another person, they have no obligation to do so. The term also applies to business interests.

Deeper definition

Some buyers enjoy having the right of first refusal because it gives them time to decide if the property meets their needs before they invest in it. It also offers them some protection while renting since they know the landlord cannot sell the property to someone else, without first offering it to them.

However, the right of first refusal is not a perfect option. It discourages potential buyers who don’t want to invest time bidding on the property if someone else has the first chance at it.

As a result, sale prices can drop, and it can take longer to sell the property. In some cases, buyers with right of first refusal pay more than they otherwise would, especially if the agreement states that they must match valid, competing bids on the property. This can be a problem if the buyer is still building enough credit to qualify for a mortgage.

Right of first refusal example

Tenants sometimes request the right of first refusal when signing a lease with a property owner as a way to secure the property.

For example, if you choose to rent a house for a period of time, you can ask the landlord for a right of first refusal as part of the contract. If the landlord decides to sell the house, you have an opportunity to buy it before it goes on the market. This means that you don’t have to leave a house or neighborhood you like living in.

Are you a tenant ready to exercise your right of first refusal? Compare rates and terms on new mortgages at Bankrate.com.