You've fallen in love with a house you've found, but there's a slight roadblock. You must first sell your current home before closing on this one. Your best ammunition to convince the seller to take a chance on you as a buyer just may be in using the "right of first refusal" clause in your purchase agreement.

The right of first refusal clause protects you and the seller by stating that: "the seller's property will be kept on the market and should another acceptable offer be received, the seller will notify the buyer in writing, and the buyer will then have "X" amount of days from receipt of notification to remove the contingency and perform on the contract. Failure to do so will declare this purchase agreement null and void with return of buyer's earnest money".

If you do use the right of first refusal clause, make sure that the timeframe specified for removing the contingency is realistic. In most cases, seven to ten days is a normal period of time fair to both parties. It's also wise to request that the seller notify you in writing by some type of return-receipt-requested method or by mail that can be tracked, like Fed Ex or UPS. This way, there will be no question of when you received notification in order for the time clock to start ticking to remove the contingency.

In a heated seller's market, there's a strong likelihood that the seller will obtain another offer. So it's wise to search out your options up front prior to entering into a "right of first refusal" offer. Would it be feasible to access the equity in your current home for a swing loan to close the second house? If so, would you feel comfortable knowing that the pressure was on to sell your first house? Asking questions like these can help gauge your threshold of risk and help you realize that although you want the second house, you're not comfortable leveraging financially to obtain it.

Even though a "right of first refusal" clause may get the seller to take your contingency offer, there are several cautions to employ especially in the way the offer is worded. First, make sure that your contingency states a minimum amount of proceeds to be received from the sale of your current home. For example, "the purchase is contingent upon the sale and closing of the buyer's current home, located at (address) with proceeds of at least $23,000". That way, should the property not generate ample proceeds to complete the purchase of the second house, you would not be forced to purchase it.

A second caution is to obtain the help you need if you're not working with a real estate agent or attorney. Since the buyer is typically the party who writes and presents the offer to the seller, the contract language strength (or lack thereof) may be based solely on the way the agreement is worded. If you are the least bit uncomfortable in your ability to navigate drafting or interpreting the purchase agreement, it's wise to spend money to hire either a real estate agent as a consultant on a fee-for-services basis or a real estate attorney. The few hundred dollars it might cost you are a small investment in designing a sales agreement that addresses your needs and protects your interests.

Published: September 29, 2000

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Julie Garton-Good, DREI “The Frugal HomeOwner™” As a syndicated newspaper columnist, author and international speaker, Julie Garton-Good DREI, C-CREC™, is called “America’s Home Affordability Expert”, addressing more than 25,000 persons annually on topics of real estate industry trends and home affordability. She is the author of five real estate books and is the sole two-time recipient of the international "Real Estate Educator of the Year" award from the Real Estate Educators Association. In 1997, The National Association of Realtors® nominated Julie as one of the fifty most influential people in the real estate industry. She shared the list with only three other women.