Article Courtesy of
By AJ Dellinger
Published September 18, 2022
When engaging in a real estate transaction, whether it’s to rent or own a
property, there is a significant amount of legal jargon that you will run into
that helps to define your rights and requirements. You’ll want to familiarize
yourself with this terminology so you best understand the arrangement and your
options for navigating it.
One term that you are likely to run into is the right of first refusal (ROFR).
What is the right of first refusal in real estate?
A right of first refusal is a clause used in contracts that allows one party the
first opportunity to make an offer on a property. It is basically “first dibs”
in legal form.
“The Right of First Refusal is when the tenant or occupant has been given the
designation which guarantees them the option to enter a transaction before
anyone else,” explains Raquel Fernandez, broker and owner of CENTURY 21 ICON in
Port Jefferson, New York. “The seller cannot sell the property out from under
them without first giving them the right of refusal or to exit the transaction.”
In action, the right of first refusal allows the holder of that right to either
make an offer on a property before anyone else and without the competition of
other bids or forgo that right and allow the property seller to seek out other
offers. There is no requirement for the holder of the right of first refusal to
make an offer if they do not want to, but they will get to make that decision
before the seller can pursue other avenues.
In what situations does the term right of first refusal apply?
There are a number of situations in which a right of first refusal may be
granted to allow one party the ability to make an offer on a property before
A right of first refusal is sometimes included in the lease for a tenant to
grant them the ability to make an offer on a property should the landlord decide
to sell it. This can be an incentive for some tenants who are interested in the
possibility of purchasing the building or unit that they are renting, should the
opportunity arise. It can be an obstacle for the landlord in selling the
property, but it can also avoid challenges and some costs associated with a
rental property changing hands.
Co-op or condo boards and homeowners associations
In some cases, Homeowners Associations (HOAs) or condominium boards may attempt
to insert a right of first refusal clause in their agreements with homeowners
who are governed by their arrangements. In these cases, the HOA or board may
have the right to buy the home or unit back from the seller before they can seek
offers from other prospective buyers on the market.
Right of first refusal clauses are sometimes included to provide the opportunity
for the home or unit to stay under the control of related parties. This clause
may be used to give a relative or family member the right to buy a property from
someone before they put it on the market and seek outside offers.
Pros and cons of right of refusal clauses
There are a number of benefits that a right of first refusal can provide to both
parties in the arrangement, but it is not without its share of potential
complications, as well.
Pros and cons for buyers
For a prospective buyer, having the right of first refusal provides an
opportunity to purchase a home without having to go through the competition of
the open market. It also offers continuity for tenants who would like to
purchase the property they are currently living in, gaining equity in it while
not having to move.
“They will always be first in line to purchase said property at agreed-upon
price at the beginning of the contract and someone else can’t come and buy the
property from under them,” says Fernandez.
Pros and cons for sellers
For sellers, providing a right of first refusal to a party guarantees a
prospective buyer when deciding to sell. It means the people with the most
invested interest in the property will have an opportunity to take it over, and
they are likely motivated to make an offer. It also may attract more invested
tenants to include such an offer in a lease.
“The pitfall would be on the seller’s side because they would potentially sell
for less than market value based on the estimation done at said time,” says
Final word on right of first refusal
The right of first refusal allows tenants and prospective buyers who may already
be invested in a property the ability to make the first offer on a property and
potentially purchase it. It allows sellers to attract parties who are interested
in potentially taking over a property and lines up a prospective buyer when the
time comes — though it may result in the home selling for less than it would on
the open market.