When it comes to commercial real estate transactions, there are several ways to secure a property. One way is to have a “Right of First Offer” (ROFO), a concept that many investors are familiar with.
What is the meaning of ROFO?
ROFO is a contractual agreement between two parties (usually the owner and potential buyer) in which the owner agrees to provide the potential buyer with the opportunity to purchase a property before it’s put on the open market. That means that if you have a ROFO on a property, you have the first chance to buy it – but you’re not obligated to do so.
Types of ROFOs
There are two types of ROFOs: exclusive and non-exclusive. An exclusive ROFO gives the potential buyer the sole right to purchase the property, while a non-exclusive ROFO allows the owner to market the property to other buyers as well. Exclusive ROFOs are more common in commercial real estate transactions.
Non-exclusive ROFOs may make sense in situations where the property owner is not 100% sure they want to sell, but are open to the idea of entertaining offers. An example of a non-exclusive ROFO would be if an investor were interested in buying a commercial property that is currently leased out.
The investor could approach the property owner and say, “I’d like to have the first right of refusal to buy this property when your lease is up.” This gives the investor the chance to purchase the property at a later date, without obligating the owner to sell.
This agreement provides the potential buyer with peace of mind knowing that they will have the first chance to purchase the property. This can be especially helpful in situations where the property is located in a highly desirable area and the potential buyer is worried about being outbid by another buyer. It also allows the potential buyer to get a better understanding of the property owner’s motivation for selling, which can be helpful in negotiating a purchase price.