Real Estate Purchase Agreements, Options to Purchase, and Right of First Refusal

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  2. Real Estate Purchase Agreements, Options to Purchase, and Right of First Refusal
real estate purchase agreement
Real Estate

A real estate purchase agreement is a contract between a buyer and seller to purchase real estate. The real estate subject to the real estate purchase agreement may be residential or commercial. In the agreement, the buyer promises to pay a specific price to purchase the real estate by a particular deadline, either with cash or through financing. Likewise, the seller is making specific promises about the condition of the real estate and its title to the real estate, as well as its promise to deliver ownership of the real estate to the seller upon payment of the purchase price.

Real Estate Purchase Agreements and the Option to Purchase

Parties enter a real estate contract with the option to purchase when the seller agrees to give the buyer the exclusive right to purchase the property in exchange for some consideration. Typically, the buyer pays an option fee or deposit to obtain the option to purchase.

The contract should outline the following provisions concerning the option to purchase:

  • Clear identification of both parties
  • A description of the real estate subject to the option to purchase
  • The purchase price, as well as time and conditions for payment
  • The length of time that the buyer has the exclusive option to purchase the property
  • The amount of the option fee, how the buyer will pay the fee, and when the buyer will pay the fee
  • Whether the buyer will have any inspections performed
  • Who is responsible for the costs of maintaining the real estate during the option to purchase

When including an option to purchase in any kind of lease or real estate contract, you should include as many details as possible to cover a wide variety of scenarios. Most notably, the option to purchase must demonstrate an explicit agreement between the buyer and seller on one or more critical, essential, or material terms of the real estate purchase agreement for it to be legally enforceable.

Real Estate Purchase Agreements and the Right of First Refusal

The right of first refusal is a contractual right given to one party to purchase real estate before the seller will consider offers by other purchasers. Thus, the right of first refusal gives one or more potentially interested buyers the chance to purchase the real estate before the seller negotiates or accepts any other purchase offers. Typically, the holder of the right of first refusal will exercise that option before the real estate is even publicly listed for sale on the real estate market.

A right of first refusal clause often is found in a lease agreement. Under this provision, a person leasing property may have the exclusive right to purchase the property if and when the seller decides to sell the property.

One benefit of the right of first refusal for the party who holds the option is the ability to consider and negotiate an offer without any pressure from other parties who also wish to purchase the property. Therefore, the holder of the right of first refusal can make an initial offer to purchase the property without any competing offers from other parties.

On the other hand, the right of first refusal can be problematic for the property owner if the real estate purchase agreement does not strictly define the parameters of the right of first refusal. If a third party offers to purchase the property based on specific terms or conditions, the party with the right of first refusal has the sole option of either agreeing to or refusing the same terms.

The purchase agreement often gives the party the right of first refusal a specific time to consider the offer, which essentially puts the third party offer on hold. This delay in negotiations may lead to the third party walking away from the proposed purchase, as well as the party with the right of first refusal deciding not to exercise its right. In this situation, the seller is left with no purchaser for the real estate.

Allow Us to Meet Your Legal Needs

Provident Law is dedicated to serving our clients by helping them through their legal problems, including those related to real estate purchase agreements. We value our strong relationships with our clients, and we are grateful for the ability to serve them. Call us today at (480) 388-3343 or visit us online and set up a time to talk to us about your case.

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