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Right of First Refusal FAQ

Right of First Refusal is a common property right used in land transactions (especially for housing and agricultural land) to require one party to reveal information about their actual valuation of a property.

For the EPA OPA, ROFR requires third party buyers to present the final price they would be willing to pay for a property – accelerating the traditional process of up-bidding.

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If the third-party purchaser is worried about ROFR being exercised, they should increase their offer size to outcompete the local rightsholder – raising the sale value of the property.

If the third-party purchaser makes an offer that the rightsholder can match, the seller can sell at the highest level offered to the rightsholder. Under ROFR, the seller’s right to sell to the highest bidder remains guaranteed. It’s fundamentally sound local preference policy – and by requiring the third party to reveal information, it gives advantage to both the seller and the rightsholder.

Economists might be concerned about reduced demand considering ROFR. How can EPA be confident that the Right of First refusal won’t undermine demand?

Through an extended series of public engagement opportunities, EPA OPA has been refined to exempt large portions of property transactions (see Exemptions FAQ). OPA only applies to a small number of transactions (12 estimated) per year, which is appropriate for an innovative policy during pilot implementation. From that small set, only a fraction will execute ROFR, because many times households will not want to pay transaction costs if they are not likely to buy, and because competitive eligible purchasers may present an initial offer that satisfies the seller’s needs.

The bottom line is, OPA actually adds potential purchasers to the market for every qualified sale. It increases demand, which can be expected to have the impact of increasing the value of existing supply. With OPA we can leverage public investment to help close the gap for lower-income households to become homeowners, and also help sellers take advantage of the local market in ways that they otherwise might not be able to.

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