Expert: Sue Bernstein - 5/22/2006

Question
I am negotiating to buy a residential lot in S. California. The current owner wants a first rt of refusal should we ever decide to sell. She says she is worried we might not develop it and just flip it (we won't) and that she wants the chance to expand her current property (adjacent that she lives on) at some point in the future when she has the means. I think this sounds like a sure way to scare off other potential buyers. She also doesn't want to match another offer, she wants us to hire an independent appraiser (on her approval) to establish the value and then she will decide if she will pay. But what if the appraiser is too low? Is there any precedent for giving her this rt but making it expire in a yr or 2 or upon development of the lot, proving to her that we will not flip it unimproved? I am confused and feel like I am walking into a trap. Thank you for your help.

Answer
Dear M,

You can certainly do any of the above.  I wouldn't recommend that you agree to a price anything other than fair market value at the time of her exercising her right.  The only way to determine fair market value is to have it on the market and not tie yourself to an appraiser that could be too high or too low.  Why should she determine who the appraiser is?  If anything it should be a neutral appraiser that neither of you have a relationship with.  Usually first right of refusal means that should you decide to sell they have first right but you can choose what to sell if for.  It is your property.  If you have to give her first right of refusal I wouldn't do it with her other than fair market value and having it on the market and if you can get away with limiting that agreement that would be good.
I hope this is helpful and feel free to e-mail me if you have further questions.

Sue Bernstein
www.SueBernstein.com