[WSBARP] Option to Purchase Real Estate

[Erik Marks]

Be careful with the Right of First Refusal in this context.  There are many important terms to a transaction other than price.  And so the "price" could be higher than fair market if, for example, the deal is seller financed with a 2% interest rate; or the "price" could be lower than fair market if, for example, the property was to be encumbered by a restrictive covenant of some sort.   And so I don't think it would make sense to grab price from a ROFR environment, with other terms being defined by a standalone PSA.

 

Further, ROFR's can trigger conflicts that generate painful disputes, Lis Pendens recordings and tie up property for long periods.  For example, what if the 3rd-party offer includes a provision that the purchaser will pay for the property being sold by (a) cash, plus (b) conveyance of a certain parcel of property held by the 3rd party or its affiliate.  How can the holder of the ROFR "match" that offer.  Then what happens?  Hence the risk of a dispute that is difficult to resolve and locks the property up.  

 

The suggestion for an appraiser-arbitrated price made by another commentator is a good way to go - using the "long form" offered.   And I would further suggest providing some defining framework to what "Fair Market Value" means and what the minimum qualifications of the appraisers are.  With respect to the former concern, consider whether FMV is by appraiser-choice of valuation by comparables, cash flow or replacement valuation; or if one or two of those are to be given greater weight.  Also consider what is allowed within the scope of a "comparable" with respect to product type and geography. 

 

 

-- 

Erik Marks 
2255 Harbor Ave SW

Suite 203

Seattle, WA 98126
  
office: 206-264-4598 
cell: 206-612-8653

erik at egmrealestate.com

 

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