When selling property or assets such as real estate, a seller generally makes an offer and a buyer has the option to accept that offer to create a legally binding contract. In some cases, however, the transaction may become more complicated. A seller can make an offer that is open for a set period of time, or can make an offer that is triggered by a future event. Buyers and sellers need to understand the different types of transactions they enter into and the rights and responsibilities that different types of arrangements confer.
In the real estate market, both an Option to Purchase and a Right of First Refusal can be used by buyers and sellers to provide more flexibility regarding when and if to enter into a transaction for the purchase and sale of real estate. Buyers and sellers need to understand the similarities and differences between an Option to Purchase and a Right of First Refusal so that they may make informed choices. The Scottsdale Arizona real estate lawyers at Lotzar Law Firm, P.C. can provide representation in negotiating sales contracts and offer terms. Call or contact us online today to speak with a member of our legal team and to learn more.
Option to Purchase vs. a Right of First Refusal
Options Contracts are common in real estate, on the stock market and in a variety of different situations. When someone is given the Option to Purchase, the potential buyer has the right but not the obligation to buy property or assets at a set price under specified conditions during a certain period of time. The potential buyer can exercise the option and complete the transaction at any time before the option expires. The seller cannot withdraw the Option to Buy until the option expires.
For example, a seller of a property could give a buyer the Option to Purchase the property for $100,000 any time over the next 30 days. If the value of the property goes down, the buyer would have the choice not to exercise the Option to Buy. If the value of the property went up, the buyer could purchase it at the $100,000 during the option period.
Typically, the potential buyer will pay a premium in order to secure the Option to Buy the property or the asset at the set price. In some cases, the Option to Buy is transferable or saleable and in other cases only the person who purchased the option may exercise it.
A Right of First Refusal is similar to an Option to Buy, but there are some important differences. A Right of First Refusal simply gives the potential buyer a chance to enter into a transaction before anyone else does. For example, if a buyer was given the Right of First Refusal to purchase a house and then someone else made an offer to buy that same house, the seller would need to give the initial potential buyer with the Right of First Refusal the option to complete the transaction.
The fundamental difference between an Option and a Right of First Refusal is that an Option to Buy can be exercised at any time during the option period by the buyer. With a Right of First Refusal, the right of the potential buyer to complete the transaction is triggered only if the seller wants to complete a sale.
Lotzar Law Firm, P.C. can advise you on Options and on the Right of First Refusal and help you to ensure you are entering into transaction that make financial sense and protect your interests. Call today to speak with a member of our legal team and learn more.
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