Real Estate Explained: How 1st Refusals Work
by Dave Williams
by Dave Williams
You’ve found it, the Perfect Home! There is just one problem, you’re home needs to be sold in order to buy this one…
Welcome to the world of First Refusals.
In plain English it’s an offer that says; we ARE going to buy your home, we just need a little time to sell ours first. Guarantee that you are going to accept our offer and that if some one else comes along who want to buy you will give us a chance (The First Right of Refusal) to say we will buy it ANYWAYS.
That’s the jist of first refusals, but if you’ve ever been involved in one you know it get’s a little more complicated.
First refusals are just like any other offer to buy a home, you make a formal written offer, it has some conditions like inspections, financing, and a special one to handle the first refusal.
This is what a first right of refusal clause contains (minus the lawyer speak).
- This offer is conditional on the buyers (you) selling their home 123 main St. within 2 months (in a real offer we would list the date and time specifically).
- The buyers will have their home 123 Main St. listed for sale on the MLS® with a REALTOR® within 3 days (again we would specify the exact date).
- While they are trying to sell their home the sellers will have the right to continue to offer the home for sale.
- Should the sellers accept another offer the will give the buyers 72h written notice (oh wouldn’t that be nice, really it usually ends up being 24-48h) to fulfill their condition.
That’s the basics, but here are a few examples of scenarios you might face and how we navigate through them.
#1 The Easy First Refusal
We walked into an open house around the corner one Sunday and loved it. We called up our Home Team Ottawa REALTOR® and put in an offer to buy the home, but it conditional on selling ours first because we would not be able to afford two homes.
During the next few days we listed our home for sale, did the inspections at the home we were going to buy and then talked with a mortgage broker, it turns out that we could qualify for bridge financing based on our credit, so all we needed was to get a firm offer.
Within a few weeks we got an offer on our home and a few days later it was firm and we were able to fulfill our first refusal and got the home of our dreams. The best part was with the bridge financing we were able to close on our new home a few weeks before we closed on the old one so moving was easy and laid back.
#2 The Pressure is On
When we hit Ottawa for our week-long house hunting trip we were suppose to find and buy our new home in a matter of days. Unfortunately the home we wanted already had a first refusal on it. We drew up the paper work to try to bump the original buyers but it was going to take a couple of days to find out.
We were lucky, because we had enough equity in our home back in Halifax the mortgage broker Home Team Ottawa recommended was able to make a deal with the bank to extend a line of credit on the old home until it sold so we didn’t have to include the sale of our home as a condition of our offer.
We did the home inspection while we were in Ottawa and fulfilled all the conditions, but it took another two days to find out the first buyers had to back out and we got the home.
#3 Don’t Miss your Chance
While surfing the web one day my wife tripped across a home she just had to have. We bought it… but we had to sell ours first. In the offer we made it conditional on selling our home, there was also the need to do and inspection but I didn’t want to spend money on an inspection until we knew we were buying it for sure, yah know.
After a few weeks we got a call that the sellers had received another offer. We had to let the home go because we had not done an inspection or talked to the bank yet. The worse part was two days later we got an offer on our home…
#4 Sometimes there is a Second Chance
…then we found out that the second offer on the home we wanted had fallen through. It turns out the new buyers had not done a home inspection or talked to a bank either and the seller got overly excited when giving us notice. The new buyers got turned down for a mortgage and we were able to bring new offer to the table, we did our inspection this time, arranged to move our mortgage with the bank to the new home, except…
#5 Our First Refusal in condition on Their First Refusal
…the offer that we received was conditional on those buyers selling their condo. So now in order to buy the home we want, we have to wait for a third home to sell. Do you know anyone looking to live in a condo in downtown Ottawa?
Hope this helps you understand real estate a little better.
As always if you have any real estate questions ask them below, or contact us directly at 613-788-2113