Buying and selling real estate often involves walking a tightrope of good timing. Can you sell your current home in time to avoid double mortgage payments? Will you have enough money for a down payment when your landlord is ready to sell?

Contingent offers and first right of refusal are tools designed to help level the playing field, but they have different implications. Our real estate agents demystify contingent offers and how they can affect your negotiations on Brighton homes for sale.

What Is a Contingent Offer?

"Contingent" refers to a condition fulfilled only upon the occurrence of another condition. In real estate, contingent offers attach a specific condition or conditions required before the sale is finalized. Typical contingencies include passing inspection, loan approval, and sale of the buyer's home. These often involve first right of refusal.

First Right of Refusal Clauses

"First right of refusal" is relatively self-explanatory. A buyer holding first right of refusal must have the opportunity to match any subsequent offers a seller receives. While they share the same basic concept, first right of refusal clauses differ from one offer to the next in terms of time limits and other qualifiers. 

When Is First Right of Refusal Used?

First right of refusal can be used for a wide range of reasons, but they generally come into play in the following situations:

• When a tenant wants to purchase a rental property
• When a buyer doesn't want to commit to closing until their own home sells
• When facilitating home sales between family members
• When a homeowners association or condo board wants to vet potential buyers or maintain a certain value on units

Elements of First Right of Refusal

First right of refusal is a contractual agreement, so it's important that all conditions affecting the terms are addressed to prevent ambiguity.

1. Is a verbal offer sufficient to trigger the agreement, or does it require a written offer or letter of intent?
2. Both buyer and seller should have a finite amount of time to exercise their end of the agreement.
3. Contingent sales, like any real estate transaction, should be governed by fair market value. Does the buyer have to match other offers, or will a third-party appraisal be used as the benchmark?
4. All contracts rely on a covenant of good faith, which is just a way of saying all parties will act honestly and fairly. For instance, a buyer requesting first right of refusal should have an actual intention to purchase.

Benefits and Drawbacks

First right of refusal provides an advantage to buyers as a way of safeguarding against competitive offers. Or a buyer may be in a bind if the clause is triggered and they have to scramble before the expiration date.

Sellers tethered to a first right of refusal can find it challenging to market their homes as potential buyers may not want to wait for the clause. The clause can work to a seller's favor in a buyer's market.

Offer vs. Refusal

Don't confuse first right of refusal with the similarly-named right of first offer. The latter merely guarantees a buyer the right to make an offer before a home goes on the market. The owner may then accept, refuse, or enter into negotiations. 

Are you bewildered by real estate jargon? Contact us at Griffith Realty and let our experienced real estate agents guide you.