|
3.
How to Handle a First Right of Refusal on
a Property If
you ever have a prospect interested in
buying a property with a First Right of
Refusal on it, you have a delicate
situation that you need to address. When
talking about a potential sale of a
property, a First Right of Refusal is an
agreement that gives someone the right to
purchase a property at the exact same
terms and conditions contained in an offer
that the owner has received (and wants to
accept) from another buyer. In this
situation, the owner is first obligated to
offer their property for sale to the
holder of the First Right of Refusal at
the exact price and terms contained in the
offer they've received. The holder of the
First Right of Refusal can then either
agree to purchase the property under the
same terms and conditions, or decline and
allow the other buyer to move forward and
complete the purchase. This
is very different from someone having an
option to purchase because with a First
Right of Refusal, the owner has no
obligation to sell their property to
anyone at a predetermined price. The
ability to exercise a First Right of
Refusal is only triggered when an owner
receives an offer to purchase their
property that they would like to accept.
The property may be listed at the time, or
the owner may have received an unsolicited
offer to purchase without ever listing
their property for sale. When
a First Right of Refusal is given, it's
normally given to the tenant occupying the
property, but occasionally it can be given
by an owner to someone else. It's normally
negotiated in situations where the tenant
feels they'd like to own the property
someday, but the owner isn't interested in
selling it to them right away. So
in activating the First Right of Refusal,
a buyer submits an offer to the owner
that's acceptable for the purchase of the
property, then the owner presents the
offer to the holder of the First Right of
Refusal to see if they are willing to
purchase the property under the same price
and terms. If they're not, the owner will
then proceed to sell the property to the
original buyer who submitted the offer. The
problem here is if you're the agent
representing the buyer submitting the
original purchase offer to the owner. If
the First Right of Refusal is exercised,
you now have no transaction to get paid on
unless you have a listing on the property.
This is true even though it was your
client's offer that caused the sale to
take place. So in effect you've done all
the work that caused the seller to sell
their property, and you've saved the
seller from paying you a commission in the
process, too. So
what's the ideal solution here? The
solution I learned in my early days in the
business when I worked for a man name Ira
Garson. Ira was a legend at selling and
leasing industrial properties in the Los
Angeles area, and I was fortunate to be
the last agent he ever trained before
retiring from real estate brokerage. Ira
had achieved a level of success in his
career that allowed him to dictate
the terms and conditions that others had
to abide by in order to do business with
him. And this is an amazingly powerful
place for any agent to be able to come
from. So whenever Ira came upon a
situation where he had an interested buyer
for a property with a First Right of
Refusal on it, he'd always say something
like this to the owner: "The
only way that I'll attempt selling your
property is if you sign an agreement
stating that you'll pay me a 6% commission
if your tenant exercises its First Right
of Refusal to buy it. Whether or not your
tenant exercises its First Right of
Refusal, it's my having produced the offer
from my buyer that's creating the sale,
and I should be compensated for it." Now
of course not every single owner that Ira
talked to in this situation would agree to
do this, but the ones who were fair and
understood the value of what he was
bringing to the table did. In addition,
the ones who wouldn't sign an agreement
like this were most certainly people who
wanted to waste his time and have him
provide them something of great value for
free. But Ira was a 30-year veteran in our
industry, and he wasn't going to let that
happen to him. So
if you encounter a situation where there's
a First Right of Refusal on a property,
consider doing it Ira's way. Make sure the
owner will pay you a commission if the
other party exercises its First Right of
Refusal when you submit your offer, and
you'll go home with much more than a
"thank you" from the owner at
the end of the day.
|
