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1st right of refusal
Old 04-24-2008, 03:21 PM   #1
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1st right of refusal

getting a bunch of bites on leasing the house. better than not leasing, not as good as a sale.

one guy's got a 50-footer he wants to dock so house & dock might rent for $2500-2800/month (we would have gotten $3500 "in the day"). another guy (a realtor) wants the house for $1800 and three kids want it for $2000-2200 (one of the kids wants to commute by jet ski to his work at a waterfront hotel nearby).

our realtor wants to entice the boat guy with a 1st right of refusal or a lease/option. that realtor would get 15%. the others are by owner. of those, the realtor/renter wants a lease with 1st right of refusal. the kids probably just want the house to wreck. no thank you.

so you're probably wondering by now what's my question:

how does 1st right of refusal play in the market? does it make the property sound more competitive or more of a pain? why would anyone bid on a property if someone else can take the house at their bid? why should i have to reveal one person's bid to the guy with first right of refusal?

never dealt with this stuff before. all advice and comments appreciated.
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Old 04-24-2008, 05:14 PM   #2
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Don't have the specifics on first right of refusal rules.

However, make sure you get a full credit report on these potential leasors. My gut feeling is to go with the guy with the boat.
Realtor sounds like a slime who is going to try to legalize you all the time. The kids are not even in contention.

Also, need first & last check to clear and security deposit checks to all clear the bank before anyone gets the keys.
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Old 04-24-2008, 05:27 PM   #3
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Well, you probably can write the "right of first refusal" any way you want. It could be an option to buy at a certain price. It could be the opportunity to make an offer if you receive an offer, without any disclosure of the first offer. It could be the opportunity to purchase at the same price and terms as a third party offer. Generally, their is a rather short time period for a party to exercise a right of first refusal.

It may make your house less salable as it will slow down your ability to say yes, no, or make a counter offer on third party offers.
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Old 04-24-2008, 05:51 PM   #4
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Originally Posted by lazygood4nothinbum View Post
how does 1st right of refusal play in the market? does it make the property sound more competitive or more of a pain? why would anyone bid on a property if someone else can take the house at their bid? why should i have to reveal one person's bid to the guy with first right of refusal?
It's usually done so that the renter feels like they're getting something extra out of the deal. The renter may have become attached to the house after living there for a while and not want to move. If they want to buy later, why not buy the house they're living in? It's good for leasing, not so good for selling, for the reasons you mentioned.

15% seems high. Is that the sales commission? If so, no wonder the realtor wants you to do it. In effect, it locks in a listing for him, and at a great commission rate. All he has to do is convince the lessee to buy it when you decide to sell.

If you decide to do it, be very careful on the wording. "Lessee has first right of refusal." is open to a lot of interpretation. I'd be very specific with the terms.
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Old 04-24-2008, 05:58 PM   #5
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Since Martha is the lawyer.. she is more right than others...

Most of the ones I have seen it gives them a right to match the price someone else bid... you do not have to tell the third party about this 'right'...

Make it contingent on them living there or they lose their right... you don't want them to have forever...
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Old 04-24-2008, 07:15 PM   #6
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Yeah, like Tex says, you don't have to tell third parties, but it might end up having to be disclosed in a counter offer or disclosed in order to have time to respond to the offer.

If you do this, have a lawyer write it up, not the Realtor.

The 15% is outrageous.
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Old 04-24-2008, 09:08 PM   #7
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thanx all, good info. the guy with the boat would actually be getting quite a good deal as dock space runs $11-15/ft. interesting take on the realtor a8 because that was my feeling as my sil described him.

"It may make your house less salable as it will slow down your ability to say yes, no, or make a counter offer on third party offers."

excellent point and as soon as i read that i sent an email to my realtor telling him to hold off on any such offer until i've considered all this further.

"It's good for leasing, not so good for selling"

makes sense. also and not quite so coincidentally, my realtor is now trying to get me to extend his contract beyond december 08. he tried to tie that into his getting the lessee and i'm a bit ticked off at such manipulation.

the 15% is on lease, not on sale. sale commission is 6%.

i really do not like dealing with all this. i very much look forward to just owning what i can tie to a stick.

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Old 04-24-2008, 10:27 PM   #8
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Originally Posted by lazygood4nothinbum View Post
i really do not like dealing with all this. i very much look forward to just owning what i can tie to a stick.

I sure understand how you feel. I have a rental I would like to sell but the market is a disaster now. I will be very revieved when I get down to one house again. I think Martha, as always, provided excellent points to ponder on your situation.
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Old 04-25-2008, 12:01 PM   #9
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update: realtor replied thusly to my concern on 1st right of refusal:

Quote:
As to the option of right of first refusal. It does not hurt you. If for example someone offers $950,000 they have the right to offer that or more to buy the house. If the house is sold it could be sold with the lease to the new buyer or they tenant will have to abide by the clause to leave within the required time from 30 or 60 days. Most likely it takes between 30 and 60 days for a deal to close unless for cash..
how would you all play the realtor's request to extend his contract to sell the house per above? for right now i think i'd rather not answer him until he completes the lease transaction he is supposedly working on.
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Old 04-25-2008, 12:08 PM   #10
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Did someone mention "thai stick"?
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Old 04-25-2008, 12:34 PM   #11
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This is a business transaction right. Lets do the math(I used the lower end numbers)

1. Lowest possible rent - $1800 - A realtor wants to pay that, so that is the base price
2. An ok rent - $2000. The kids - if you get a security etc you should be ok there
3. Good price - $2500. The boat guy and he would like you to give him the right to first refusal. But you pay 15% to the realtor which is $375. So effective rent is $2125

So he is effectively paying you $125/month for the right to first refusal. I think you have previously mentioned that the place is worth close to a million. Lets say you sell the place in about 8 months. So you would get paid an extra $1000 for giving him the right to first refusal.

Everything said and done, is it worth $1000 extra bucks over an year for you to take on extra hassle? That's the question to ask.

Think of it this way.Since folks said right to first refusal is because the person living there might want to live there, how about you present it to them like this:
Rent is $2350, realtor gets 15% = $350 giving you an effective rent of $2000. Now he will pay you $750 for the right to first refusal for every 6 months - this is paid at the start of the 6 months for which he will get the right. What was presented to you and this offer are the same (I agree we went from 1 month intervals to 6 months)

Do this sound like something you or the other person would like? Would you take this offer? Its just framing of the problem

does his help?
-h
p.s: I think $125/month for the right to first refusal is too low!
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Old 04-25-2008, 07:01 PM   #12
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15% commission on the lease seems way high. I paid 8% on mine. They should handle everything for your for that fee - collect rents, disburse your share, take care of repairs (you pay for the actual repairs, though), eviction, etc.

6% on the sale is reasonable. Do you want to lock in at that rate with this realtor for the term of the lease? If you really like this person, you might want to negotiate a lower lease commission and go with the deal. Did the realtor produce the prospective renters for you?
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Old 04-25-2008, 07:27 PM   #13
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Originally Posted by lazygood4nothinbum View Post
update: realtor replied thusly to my concern on 1st right of refusal:



how would you all play the realtor's request to extend his contract to sell the house per above? for right now i think i'd rather not answer him until he completes the lease transaction he is supposedly working on.
I would say that the 'right' you want to have will cost you $100 per month...

it is not 'free' to give someone this right... you need to get something... a lease that is below market is not 'getting something' IMO...

His right to buy is he can offer MORE money than the other person... not wait and see what you are willing to let it go and then scoop it up....

I just don't see a good reason to give anybody who is leasing this right...
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Old 04-25-2008, 07:30 PM   #14
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T
-h
p.s: I think $125/month for the right to first refusal is too low!
OK... I just read this... mine is a bit like this one... but he thinks $125 is low... so my $100 is way low...
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Old 04-25-2008, 07:57 PM   #15
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Did someone mention "thai stick"?
Haven't heard that phrase since about 1978
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Old 05-01-2008, 03:40 PM   #16
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gottanother question: why would someone want to sign a lease now for a property they do not intend to occupy until november?


Quote:
Originally Posted by lswswein View Post
This is a business transaction right. Lets do the math(I used the lower end numbers)

1. Lowest possible rent - $1800 - A realtor wants to pay that, so that is the base price
2. An ok rent - $2000. The kids - if you get a security etc you should be ok there
3. Good price - $2500. The boat guy and he would like you to give him the right to first refusal. But you pay 15% to the realtor which is $375. So effective rent is $2125...

...So he is effectively paying you $125/month for the right to first refusal.
nice analysis, thanx (to you & tex). i never would have thought that a 1st right of refusal has monetary value. as to rental amounts. the realtor/renter came up to 2k before we refused. the kids came up to 2200. we are going with our realtor's deal to be signed tomorrow by the tenants. i told the realtor that i'd prefer no first right of refusal but if it is a deal breaker i will reconsider.

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15% commission on the lease seems way high. I paid 8% on mine. They should handle everything for your for that fee - collect rents, disburse your share, take care of repairs (you pay for the actual repairs, though), eviction, etc.
15% sounds high to me now that everyone's mentioned it. my bad. we didn't really pay any attention to that sentence in the realtor agreement because at that time we had no intention of having the realtor rent the place. in fact, our agreement has a separate clause stating that we can rent it ourselves with no commission paid to the realtor as that is how we thought this would play-out.

meanwhile, i checked with my cousin who has rental property in naples. she pays 18% and says she knows of many who pay 19 & 20%. though my previous realtor agreement would have paid only 1 month per year or about 8%. i will find out if that 15% buys us any services.

Quote:
6% on the sale is reasonable. Do you want to lock in at that rate with this realtor for the term of the lease? If you really like this person, you might want to negotiate a lower lease commission and go with the deal. Did the realtor produce the prospective renters for you?
realtor is still trying to strong arm me into extending his sales contract but i think the 15% ought to satisfy him concerning that. seems the sales contract should only get extended based upon performance ie how about bringing us a offer, why don't ya, and then we'll talk extending your contract.

of course the realtor produced this renter, otherwise we would not consider that aforementioned 15%. i think also the realtor would get his 3% on this renter were this renter to turn into a buyer down the line and should we change realty agencies by then.
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