First Right of Refusal vs. First Right to Purchase

The clause, First Right of Refusal is probably one of the most misused terms that I see in the residential real estate industry. Most agents use the clause to try to lock up a buyers position on a real estate purchase contract when a buyer still might have a contingency to work out. Usually it is a property that is in escrow that needs to be sold in order to buy a new one.

The first right of refusal gives a buyer the right to match or beat a subsequent offer that comes in later on the property by another buyer. This clause is usually requested by the seller so they can continue to market the property. I can’t say that I blame a seller. Why take your home off the market for someone that can’t fully perform yet. They can accept a contract and still continue to market the property for buyers that may offer better terms and can close now. The problem with this is that to the buyer they have no real price protection. Someone can come in and offer a lot more than the original buyer was willing or able to pay. The original buyer may have just spent a lot of time and money trying to work out a deal that can be swept right out from under them. From a buyers point of view I would recommend using a “First Right to Purchase” clause. This gives the buyer a certain amount of time to remove their contingency without having to renegotiate the purchase price. A new buyer can come in with a significantly higher price, but the buyer in 1st position will get the property as long as they remove their contingency and continue with the purchase of the property. The purchase price will remain the same even if a higher price is offered by another buyer.

If you are a buyer just realize that most agents don’t know the difference. Be sure to have your agent use the First Right to Purchase clause in your contract if you are going to write a purchase contract with a contingency in it. The last thing that you want to do is to have to go back and negotiate on price again.

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