Right of First Refusal

[bwoods11]

I guess I've seen it both ways. In my area, farmers that rent land for say 20-30 years, will sometimes ask the landowner for a first right of refusal. This can work out for both sides.

They can field offers, then have the offer matched so it guarantees a sale.

I've also seen it get ugly, when someone makes an offer not fully understanding the right of first refusal....
Then they find out and they feel like they were played, and lost the property.

It depends on the situation

 

[Jordan Selsor]

Express interest
Be neighborly
Kiss a lil A$$
Send him a Christmas card annually

Personally if someone gets pushy with me I go the other direction

 

[MoBuckChaser]

If you ever want a great opportunity to expose yourself to a lawsuit, get something as stupid as a Right of First Refusal recorded at the county recorders office. What person in there right mind would waste time trying to make a deal on a property, knowing in the back of his or her mind, someone may step in at the last minute and exercise that right of first refusal? It makes absolutely no sense for a seller or potential seller to enter into a agreement like that.

 

[UP Powers]

there once was a time when I was young, when I fished with my dad. I could see 1000's of coho bubbling in the water in the distance. I told him to start the motor so we could get closer. He said if we do we will scare them and we might catch a couple. He asked do you want a couple or do you want a lot? We waited for an eternity and then it happened the school turned our way. Fish after fish hit and we filled the boat.

moral.. don't spook the fish. Show interest, don't PUT ANY "first right of refusal" on anything. Don't approach with restrictions. Give him thought leadership as how selling this to you will be in his best interest. If you come with questions than you will give him the chance to give you an answer you might not expect. Come to him with a solution in good faith that is beneficial to him. You must demonstrate on how this is in his best interest to sell the land to you.

I can tell you a huge factor in a sale is trust. Demonstrate it over and over in your conversations and you might have enough sway to influence this sale. Spook him with "first right of refusal" he will be gone.

 

[Tree Spud]

there once was a time when I was young, when I fished with my dad. I could see 1000's of coho bubbling in the water in the distance. I told him to start the motor so we could get closer. He said if we do we will scare them and we might catch a couple. He asked do you want a couple or do you want a lot? We waited for an eternity and then it happened the school turned our way. Fish after fish hit and we filled the boat.

moral.. don't spook the fish. Show interest, don't PUT ANY "first right of refusal" on anything. Don't approach with restrictions. Give him thought leadership as how selling this to you will be in his best interest. If you come with questions than you will give him the chance to give you an answer you might not expect. Come to him with a solution in good faith that is beneficial to him. You must demonstrate on how this is in his best interest to sell the land to you.

I can tell you a huge factor in a sale is trust. Demonstrate it over and over in your conversations and you might have enough sway to influence this sale. Spook him with "first right of refusal" he will be gone.

UP ... you hit the nail on the head. TRUST!

Bringing up a legal issue that would make the seller feel restricted in some way starts things off on the wrong foot. I have had many neighbors who are older, long time local resident farmers who own larger adjoining parcels. Talking about their land is a very touchy subject. If you are not local then you are one of the big city rich types who keeps driving land prices and steeling all of the hunting land from the locals. :mad:

My wife and I found a 460 acre farm that was only on the market for only 2 days. It had 300 acres of great ag land with a irrigation system and the balance woods & marsh. We could've cashed flowed the PITI on the property with the rental income. 3 days later we walked it and were ready to put an offer in on it. Called the realtor and it had already sold. Found out the farmer had a local neighbor farmer chasing him to buy it but was low balling him. So he put it on the market and the neighbor paid full asking of $1.4 mil.

If you are too eager with him, he will put it on the market at an inflated price and force you to pay more or sell it to someone else. If you think you may have created an issue with him, send him a letter (not face to face) and apologize for possibly offending him. Stop by around the holidays with a bottle of brandy and some venison sausage. Get to know him and build some trust ...;)

 

[yoderjac]

We have a farm that is held by an LLC. We intentionally wanted to make it hard to sell shares. We did not want a situation where one of the owners would get upset or in a financial bind or something and sell shares to the highest bidder who may have a very different hunting ethic than the rest of us have. So, what did we include in our LLC agreement? The first right of refusal. We also have a minimum shares threshold for owners to have access to the land for hunting and other recreation. This means an owner trying to sell must get a legally binding offer good for a specified time period. The other owners then have an opportunity to declare if and how many of the shares they will buy at the offer price. So, the outside buyer may or may not get enough shares to have access to the farm (other than financial). So, the outside buyer takes a risk when he makes an offer. This devalues the shares to a random outside buyer. This protects the interests of the remaining owners.

This seems at first like a real handicap but it isn't. It forces a selling owner to take into consideration the other owners before selling. He simply needs to find a buyer with a hunting philosophy aligned with the other owners, and socialize him with the other owners. Once they get to know and trust him, they have confidence his philosophy is similar to their own and the perspective buys has confidence they won't leave him hanging with too few shares to be able to use the land.

There are situations where right of first refusal can be a good tool, but think about it from a buyer's perspective. Why would I as a buyer do all the research and make a top offer for a property when I know, someone else can come in an offer the same price as me and get the property. There would need to be some real incentive to buy the place. If I have several candidates, knowing there is a first right of refusal on this property would be a negative.

So, if I'm the seller, why would I want to do anything that could dissuade a potential buyer from making me his best offer? The only reason I can think of is because I'm making money doing it. So, it depends on how much you want the land. I'm sure if you offered him enough cash for the right of first refusal, he would probably sell it to you.

Personally, I'm with many other posters. If he has already sold land to you and you both are happy with the transaction, simply let him know you are interested and ask him to let you make a offer before he sells it to someone else. That is probably your best bet.

Thanks,

jack

 

[WTNUT]

I looked as some of the responses and generally agree, but will share my experience over the last 25 years. I have purchased a lot of farms in several states, and sold some as well. I use to try to get a right of first refusal, but don't any longer. First, I do think it has the potential to lower the value of the land being sold. Look at it this way, no matter what a third party buyer does he does not have the right to buy the property regardless of what he offers. There is the chance you will come in and match his price. Everyone wants a good deal as a buyer, and you are not going to get one if there is a right of first refusal hanging over the land. It is too easy to look at a tract of land that does not have a right of first refusal on it. For the last 15 or so years, I simply start and keep a good relationship with my neighbors or anyone that has a tract I would like to buy. I tell them up front that if they ever sell, I would like to have the opportunity to purchase the property. I have never lost a tract by doing this. They know I am a serious buyer and it has worked well several times. Most recently, I bought an adjoining tract for about 60 % of it's value simply because the elderly individual knew I would take care of it as he had. He said it meant more to him than money, and that tract looks better than it ever has right now and I will keep it that way. Someone mentioned trust, and that is a key factor. People have to trust you to do what you say you will do.


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[kl9]

Thanks everyone!