Are you a seller who would consider taking a contingency-laden offer if you could keep the property on the market to attract other potential buyers? Your ace in the hole may just be the “right of first refusal” clause!

In a buoyant seller’s market, “Murphy’s Law of Real Estate” pretty well ensures that the first offer you receive won’t be quite the offer you want. It may have more than its share of shortcomings and contingencies including a potentially damaging one for you---the sale of the buyer’s current house. Your dilemma is to reject the offer completely in the hope that a “cleaner” offer will come along; or take the offer, take the property off the active market and pray that the buyer’s home sells sometime in the future.

The best of both worlds may be using the “right of first refusal” clause in the purchase and sales agreement.

Here’s how it works. The right of first refusal clause states that should another acceptable offer be received, the current buyer shall be notified (typically in writing) and have “x” amount of time (often several days up to a week or more) to remove the contingency and purchase the property. If the buyer can’t/won’t remove the contingency, the buyer’s earnest money is returned and the second buyer becomes the one in primary position. This allows you the flexibility to take a less-than-perfect offer while keeping the property on the market to attract additional buyers.

What kind of buyer would allow the “right of first refusal” to be placed in a contract? One who knows that her offer is less-than-perfect and/or one who falls in love with the house, can’t live without it and wants to attempt to “tie it up” at most any cost. For many buyers, there’s strength in knowing that you were the first one to stake your claim and that before the seller can take another offer and potentially kick you out of first position, he’ll have to notify you. Depending on the buyer’s level of motivation and/or financial resources, she may decide at that time to take out a bridge loan against the equity on her current house to complete the purchase. Unfortunately for the seller, it often takes the motivation of “fear of loss” before this occurs.

Are there any cautions for the seller in using the “right of first refusal” clause? As with most real estate contract clauses, what’s designed to help you can potentially harm and penalize you. Other prospective buyers, especially those highly motivated, might not want to wait the required period of time to see if the first buyer removes the contingency and follows through with the purchase. Yet other buyers may hear that “there’s a contract on the house” and fail to realize that it’s one that can be bumped in a matter of days should a cleaner offer come along.

And there’s one last caution for sellers considering the “right of first refusal” clause in a sales contract. If you’re not working with a real estate agent, make sure that you hire one as a real estate consultant on a fee-for-services basis (or use an attorney) to at least double-check the contract language. What a nightmare it could be to later find that an improperly worded contract couldn’t be enforced and instead tied you indefinitely to a buyer who refused to budge.

Published: September 25, 2000

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Julie Garton-Good, DREI “The Frugal HomeOwner™” As a syndicated newspaper columnist, author and international speaker, Julie Garton-Good DREI, C-CREC™, is called “America’s Home Affordability Expert”, addressing more than 25,000 persons annually on topics of real estate industry trends and home affordability. She is the author of five real estate books and is the sole two-time recipient of the international "Real Estate Educator of the Year" award from the Real Estate Educators Association. In 1997, The National Association of Realtors® nominated Julie as one of the fifty most influential people in the real estate industry. She shared the list with only three other women.