Final answer:
A right of first refusal is a legal term used in real estate transactions, giving the holder the option to purchase a property before the owner sells. It is a reactive position compared to an option to buy, which is proactive.
Step-by-step explanation:
A right of first refusal is a legal term commonly used in real estate transactions. It gives the holder of the right the option to purchase a property before the owner sells it to someone else. The holder of the right waits until the owner wants to sell and can then choose to exercise that right or let the property go.
Unlike an option to buy, which is a proactive position, a right of first refusal is a reactive position because it relies on the owner's decision to sell before the holder can take action.
For example, let's say John owns a property and Jane has a right of first refusal on that property. If John decides to sell the property, he must first offer it to Jane. She can then decide whether she wants to buy it or let the sale proceed to another buyer.