What do you do when an owner invites you to bring in an offer from a buyer on the owner’s property, but the owner tells you that the tenant has a first right of refusal to purchase the property? Veteran brokers will understand what this term means, but if you’re newer in the business, a first right of refusal is an agreement that allows the tenant to step in and buy the property at the exact same price and terms, that an outside buyer is now offering to the owner to purchase the property.
The problem here for brokers, though, is that you can bring in an offer from your buyer that the owner would like to accept, then the owner submits the offer to the tenant, and the tenant and the owner then close the deal directly, with you not getting paid any commission!
When it was actually the offer from your buyer that really made the transaction happen!
So with this in mind, when an owner tells you that they are interested in selling their property, and then tells you that their tenant has the first right of refusal to purchase it, consider then saying something like this to your owner:
“If I bring in an offer that’s acceptable to you, and the tenant then buys the property because of my offer, understand that it is the procuring of my offer that has caused the sale to take place, and I want your word that you will still pay me my commission if the tenant buys the property.”
In keeping this in mind, some owners will understand the value of you having procured the offer, and others will think that it’s meaningless, because they just don’t want to pay you any commission.
So ideally you’ll want to get something in writing from the owner about paying you your commission, before you ever bring in your offer, and keep in mind that the owner already having the tenant on the property can become a major part of getting the sale to close, because the tenant may have a much stronger desire to buy the property than your outside buyer, since the tenant is already operating their business on the property.
Your outside buyer may be more picky about all of their contingencies being fulfilled, or they may decide to pass on buying the property during their contingency period, but the tenant intends to occupy the property for years to come, and they’d rather now be an owner, and stop being a tenant.
In putting all of this together, if the owner doesn’t want to pay you a full commission if the tenant buys the property, you could consider reducing your commission if they insist, or maybe even treating them like a cooperating broker, since again, that tenant may be more likely to close the transaction than your outside buyer, who may be fine with changing their mind and buying another property instead of this one, when they are still within their contingency period.
In addition, as I’ve mentioned, if you had nothing to do with putting the tenant into the property, the owner having done this without you can now become a major part of truly making this deal happen, because of the tenant’s motivation to now own this property, and because of this, as much as I never like to recommend reducing your commission, being willing to take less than a full commission in this situation could actually be warranted.