Have You Ever Encountered a Seller Having a "Right of First Refusal" Restriction on their Property?
A prospective seller tells me she's interested in selling her property to me at the price I named; however, she says that she bought the parcel from an adjoining property owner some years back (that much I can verify), and that when she did so she agreed to a right of first refusal clause, meaning that the neighbor/original owner has the option to buy the property back at any price that the current owner is offered by any other prospective buyer.
The current owner has a bad taste in her mouth with respect to the neighbor/original owner, and the property value has decreased significantly from what the current owner paid the neighbor for it, so she says that as a matter of principal she would rather sell it at a loss to a third party such as myself than sell it back to the neighbor/original owner at that price. Does anyone know of any way that she could do so?
mattpayne Matt Payne last edited by
David Ludwig I don't know enough about these to speak with much confidence, but I thought the right of first refusal was used on properties that haven't been sold yet. Kind of like when an investor gets an option to purchase, which gives that investor the first right to buy it, but they don't have to. They're just given the first crack at it when the owner decides they want to sell.
What you're describing sounds like a property that was already sold, and now the original seller wants an option to buy it back?
I guess it could be done, it just seems unusual. If the seller wanted to keep the property, why did they sell it in the first place?
Again, there's probably something I just don't understand, but it sounds like a strange scenario to me.
Thanks Matt Payne. Unfortunately, you pretty much nailed it, and I agree that it seems pretty unusual, but I haven't been at this long enough to know whether it's completely unheard of within the vacant land space or not. From what I've read in googling this topic, it sounds like this is not entirely uncommon in some city condo situations, like co-ops I guess, because it gives the condo/co-op board the ability to screen prospective buyers, and invoke the board's right to buy a seller's unit rather than letting them sell it to a buyer that the board finds undesirable in some way, I guess. Sounds pretty gross and another reason not to live in a big-city co-op, to me.
Essentially, the original owner of the property in this scenario had subdivided the land that they live on, and sold a sizable vacant parcel from that property to the current owner. This was around 15 years ago, at the height of the bubble in the local area, so the current owner paid absolutely top dollar for this land.
But still living next door to the land, the original owner convinced the buyer/current owner to agree to this right of first refusal, so that they (original owner) would always have first option (in perpetuity, according to what the current owner tells me) to buy the land back, should the current owner ever decide to sell it.
I've offered to review the clause and/or help find a RE attorney to do so, on behalf of the current owner, but so far she hasn't taken me up on that.
Edited to add: Original owner still lives next door to the property, or at least owns the house anyway, confirmed on county GIS records.
David Ludwig I actually had a deal go sour after finding out about a right of first refusal in the deed that my title company somehow failed to address. I had a buyer lined up and even had a survey done on the property as part of the deal. I was supposed to sell it for 9k and make around 6k. The neighbor saw the surveyor there and wasn't too happy when he found out about the pending sale. He was ready to sue both my LLC and the former owner. My attorney at the title company advised me to negotiate a deal with the neighbor so I sold it to him for 5k and luckily my title company paid me back enough for me to still make a couple grand.
Joe, wow, that would definitely be a worse situation, to only find out about the restriction after you've already bought the property. Glad it worked out okay for you because that certainly sounds like it could have turned into a very complicated, drawn out mess.
Out of curiosity, did you have any conversations with the person that sold you the property, after you found this out, and if so, how did they explain not disclosing this to you?
David Ludwig I never spoke to him about it but he was an older guy and the right of first refusal was from over 20 years ago I believe so my guess is he just completely forgot about it.