How to Still Get Paid a Commission on a First Right of Refusal
Let’s say you’re prospecting and you come across a property owner who would like to sell their building, but they tell you that the tenant in the building has the first right of refusal to purchase the building. What this typically means is that if the owner wants to accept an offer that they’ve received from an interested buyer of the property, that the owner must first allow the tenant to purchase the property at the exact same price and terms.
The problem for the broker here is that in this type of situation, if you submit an offer from a buyer to purchase the property, and the tenant ends up buying the property under the exact same terms of your buyer’s offer, it was really your offer that caused the sale to happen for the owner, but they’re not going to want to pay you a commission.
So when you encounter an owner who is interested in selling, but they tell you that the tenant has the first right of refusal to purchase the building, I recommend that you say something like the following to the owner:
“I’m more than happy to bring you in an offer from my buyer. But if your tenant exercises their first right of refusal to purchase the property, it is my offer that will have caused the sale to happen, and therefore I need to know that I can count on you to pay me my commission, whether it is my buyer who ends up purchasing the property, or your tenant.”
This way, at least if you then move forward and bring in the offer from your buyer, you’ll be protected on your commission if the tenant ends up buying the property. (And you’ll really want to have this commission agreement signed and in writing before you ever obtain your offer.)
In addition, if the owner starts grumbling about the amount of your commission, since you may have had nothing to do whatsoever with originally putting the tenant into the building, you may consider treating the owner like a cooperating broker on the total amount of the commission, if the tenant ends up buying the property.
Because let’s face it…a tenant who has already been occupying the building for years, is much more likely to close, than a buyer who hasn’t yet begun to investigate any of their contingencies.
So this then gives you an alternative to still bring in an offer to purchase the property, when there is a right of first refusal in place, without being concerned about getting kicked out of the deal if the tenant then ends up buying the property.