Dealing With The First Right Of Refusal In Property Business

							Dealing With The First Right Of Refusal In Property Business
First, right, refusal, FROR, real estate, property
Dealing With The First Right Of Refusal In Property Business

When you hold an FROR (First right of refusal) on a real estate property
(or any other asset for that matter), it basically means the current
owner of the property is obligated to offer you the property (to
purchase) whenever he/she decides to sell the property. In case the owner
sidesteps the person holding First right of refusal, and sell it to
another buyer, the FROR holder can take them to court for reparation.
To understand how FROR works, let's have a look at this example. Mr. A
owns an apartment and rents it out to Mr. B. After living there for some
months, Mr. B develops an interest in purchasing that apartment, for some
reasons the transaction cannot take place straight away. However, Mr. B
asks for an FROR agreement and Mr. A agrees. Now, once the agreement is
signed by Mr. A, he is now restricted to offer this apartment to Mr. B
before he finalizes the deal with any other party. For example, when he's
approached by a third party with an offer of say, $450,000 USD, and he is
willing to accept, he must first contact Mr. B and make an offer for him
to buy this apartment for the same amount ($450,000). It is only after
Mr. B refuses to buy, when Mr. A will be free to sell the property to the
third party. Remember, Mr. A can not ask for a better price, he must
offer the property to Mr. B for the same price, which was being offered
to him by the third party.
Question is why a seller in his /her right mindset would agree on
presenting someone with an FROR contract. Answer is, because it doesn't
really hurt the seller in anyway. However, there are some minor plus and
minuses attached to this contract. For example, seller can ask for a
small amount as a fee for an FROR contract, also such contract may add a
little value to the property. Coming to the negative side, real estate
agents are reluctant to deal with such properties, in case the holder of
FROR accepts the offer and make a purchase; the agent will be deprived of
any commission whatsoever. However, the best thing about First right of
refusal is that it doesn't have some predefined clauses or terms, seller
and buyers are free to negotiate and jot down their own specific
conditions.

There are some modified versions of FROR as well, one of them is Right of
First Offer, in which seller has to approach the holder before putting
the property on sale.