A 1st Refusal, what's that?
From A Sellers View
You have your beautiful home listed on the market and finally get an Offer! How exciting!!
The price is almost where you want it, the closing date is perfect. The conditions all seem fair. Financing approval, home inspection, lawyer review, and then... a 1st refusal condition?? Say what?
The buyers need to sell their home first? Does that mean we can still put a SOLD sign up?
In today's market, we are finding 1st refusals more common. Buyers want to purchase a new home, but they are worried that they won't sell theirs and then they are stuck with 2 mortgages. Or the frantic price dropping and doing everything they can to sell their home and still its no guarantee.
1st of all... A 1st Refusal on your offer isn't always a bad thing. As the inventory of homes in Ottawa climbs and homes take a little longer to sell the first refusal is a preferred tactic for buyers to buy time and secure the home they want. It's not ideal, obviously you would rather it Sold firm after just 5 business days of Home Inspection, financing and any other conditions, but you received an OFFER! Thank goodness! Once you have come to agreement on terms and price, you have conditionally sold your home. If all other conditions get waived within the 5-7 business days, then you are just still waiting on the Buyers Home to Sell. In the meantime your home is still on the market and someone else Can put in another offer.
Terms of a 1st Refusal or 1st Rights:
The clause for a 1st Refusal can look like this: (Just a Sample Copy... some differences may occur)
This Offer is conditional upon the sale of the Buyer's property known as_________________ Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9 p.m. __________ that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein.
Provided further that the Seller may continue to offer the property for sale and, in the event the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto. The Buyer shall have 24 hours from the giving of such notice to waive this condition by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, failing which this Offer shall be null and void, and the Buyer's deposit shall be returned in full without deduction.
To sum it up, this clause basically says, give us some time to try and sell our home. Meanwhile we will fulfill all other conditions, give you a deposit and then if we don't sell in the time period of a month or so, we can get our deposit back in full. If and when we sell our home firm, then we will give you notice in writing to waive the final condition of selling our home and the Sold Sign can go up giving us the home. In the meantime, while we attempt to sell our home at an aggressive or fair price, you can still keep your home listed and allow another buyer to put in an offer. IF another buyer puts in an offer, then the Seller must give the Buyer notice that an offer has come in, and give the Buyer 24 hrs to decide if they wish to waive the condition of selling their home. If they Buyer comes back and says they cannot, then the Seller may accept another offer.
I like to think that a 1st refusal is a great way to try and secure a buyer and get your home sold. It's like having a buyer in your back pocket in case no other offer comes in. What's the Risk? Well, on the mls sheet it does indicate that there is a 1st refusal offer in play. If another buyer wants the home, they may still not get it. However, it doesn't mean that Buyers still won't try. Most agents will tell their buyers that there is a 24 hr notice clause if they put an offer in and most people can't afford 2 mortgages, so the chances of the buyers deciding to waive the condition if their own home isn't sold, are slim.
All in all, a 1st Refusal means that a Buyer wants to Buy your home and they will do what they can to get it. A great position to be in... Having a Buyer want your home and present you with an Offer! One Step closer to getting your Home Sold!
From a Buyers View
You are a Buyer who currently owns a Home. You are thinking of moving, but only if that One Perfect Home comes up that you love. As you casually look, you come across it. The perfect home with a fabulous layout and yard. Now you decide you want to Buy this home before someone else gets it... just one thing stands in your way. Your home. You need to list it and get it sold and definitely can't afford to Buy another without selling yours first. Your friends have had their home on the market for awhile, although you think theirs is a bit high in price. You are afraid that maybe yours won't sell quickly too. The first thing you do is get a trustworthy agent. The agent will help you figure out a 1st Refusal clause and help you get your home ready to list. When putting in a 1st Refusal, not many agents (if any) will allow a 1st Refusal without having it in writing that a professional Realtor must list your home and have a date it must be listed by. The Listing Agent will also take into account how "sellable" your home is, what kind of price you will be listing at etc...
They need to know that you are "serious" about selling your home so that you can buy this one.
When your realtor and you discuss offer price, conditions and put the 1st Refusal Clause in, your Realtor will present the offer to the listing agent. Sometimes they will ask beforehand if a 1st Refusal would be entertained. The listing agent should discuss beforehand what it is and see if the seller would allow this condition. Usually if price and closing date along with other conditions are good, they will at least discuss with their Realtor the possibility of agreement.
If an accepted offer occurs, then you are on your way towards owning the home!
Conditions still must be met within a time frame. Usually 5-7 business days. So a Home Inspection is usually booked, make sure you have the deposit amount in your account as that will be cashed and held in a trust fund at the listing brokerage, and your mortgage lender will have to approve your financing based on selling your home and the purchase of this one. Plus any other clauses you may have, adequate home insurance, lawyer review etc..
After these conditions are met, your Realtor has you sign paperwork called Notice of Fulfillment. This shows that you are waiving these clauses. Now you just have one final clause to contend with... Selling your home within a certain amount of time. Make sure it is priced to Sell. There is no time to see if listing your home at top price will get any bites and then lower it if it doesn't. You have potentially purchased your Dream Home IF you get yours Sold. Sell Sell Sell. Do whatever you can to make it a possible. Price it well, make it presentable and don't take chances of losing the Home you want. Be Reasonable and listen to your Realtor. If you do, and with a little luck, a Buyer will find your home is their next Dream Home and then you can move into yours!
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