Simply stated, the right of first refusal is an agreement made between a seller and a potential buyer allowing the buyer the option to purchase a home or business in the future by matching any other bids. Should an outside offer to the seller arise, the buyer with the right of first refusal has the option of matching the bid or walking away from the deal.
Say, for example, that you sign a right of first refusal agreement with Manufacturer “A”; along come Mr. and Mrs. “B,” who want to take over your business, and they offer you $1 million. Manufacturer “A” hears about the offer — because you are legally obligated to inform the company — and also offers $1 million. You have to sell to “A.”