Beware The Right Of First Refusal Clause When Purchasing A Home

Buying a home is normally a straightforward process where the seller accepts the buyer's offer and the buyer writes a check for the purchase price. Sometimes, though, the process may be interrupted by the homeowner's or condo association. In particular, some associations have right of first refusal clauses in their contracts that essentially gives them final say over whether the sale can go through or not. Here's more information about this clause and how it will affect your home-buying endeavor.

Right of First Refusal

A right of first refusal clause essentially requires sellers to provide the named persons or entities in the contracts the right to purchase their homes before anyone else. In the context of a homeowner's or condo association, the organization can opt to purchase the seller's home. Only after the association waives its right of first refusal can the homeowner go through with a sale to someone else.

The primary reason HOAs and condo associations have this type of clause in their contracts is to prevent owners from selling their homes at prices that would drag down property values of the entire building or neighborhood. As such, if the owner is selling the home at a discounted rate, the organization will purchase the property and, in many cases, flip the home to someone else who's willing to pay more.

For a buyer, this means one of two things: either you'll have to pay more for the home than you originally planned or you'll lose out on the sale altogether.

Countering This Clause

There's not a lot you can do to counter this type of clause, since the law is on the HOA's or condo association's side. In many cases, though, there may be nothing you actually need to do. These clauses typically must be executed within a short period of time, no longer than 30 days, and it may be impossible for the board to come up with the money needed to buy the home from the owner. In that situation, all you need to do is run out the clock. Once the deadline passes, the right of first refusal is automatically forfeited and the sale can go through.

The only other option is to prove the board is exercising the right of first refusal in discriminatory manner, which can be difficult. However, if you have evidence the board is discriminating against the sale because of your race, sex, sexual orientation, religion, or other protected class trait, notify your attorney immediately. He or she can remind the association about anti-discrimination laws, which may cause the board to back off.

For more information about right of first refusal clauses or help with a home sale, contact a real estate agent.