Mythbusting OPA in EPA
UCLA Economics Professor Sushil Bikhchandani has weighed in on East Palo Alto's proposed "Opportunity to Purchase Act." "It is difficult to estimate the magnitude of the negative impact that an ROFR will have on home prices, but it may well be substantial."
This ordinance would in fact negatively impact home prices
There’s plenty of research available on how the Right of First Refusal lowers prices in auction-type environments such as property sales. The statement that there’d be no impact flies in the face of published academic research as well as everything we know about home sales. Example 1 Example 2 Example 3
The ordinance would negatively impact home prices even for homeowners who are “exempted”
The policy would apply to all sizes and types of homes and, through appraisal “comps”, would impact the selling prices of all homes in the city (appraisers don’t consider whether a property is rented or not or where the owner lives when they select their “comps”).
Opponents of OPA are not misrepresenting the Ordinance and its impact
We are referring to the language of the Ordinance itself as we formulate our pleas to reject this policy. You can read the Ordinance for yourself here. For instance, the Realtor whose postcard Councilmember Romero waved at the Dec 22nd EPA City Council meeting drew homeowners’ attention to the possible penalties of 10-30% of the value of the home if they sold without complying with the ordinance. This is written into the Ordinance in the “Penalties” section (shown here). The Councilmember stated that this flyer said that “the market would fall by 30%”, and he objected to that characterization and labeled it as an example of misinformation by the opposition. But the postcard, as you can see here, very clearly referred to penalties, not prices - and the penalty clearly does range from 10% to 30% of the sale price for a knowing violation. This is just one example of where proponents of OPA are being unfair in describing the efforts of opponents.
Extract from Realtor flyer
Extract from Penalties section of OPA Ordinance
Homeowners don’t have anywhere close to a million dollars in equity in their homes
A typical homeowner who bought a home in EPA five years ago (or who refinanced a long-owned home then to take money out for expenses) likely has a mortgage close to $750,000 - money they owe to the bank and must pay back whatever happens to the value of their home. They probably put in a downpayment of $200,000 of their savings (or maybe loans from within their family) to buy the home. Even they sell their property for $1,000,000 then after preparing the home for sale and transaction costs they lose money overall. But if the property sells for $900,000 they get only $150K which is less than they put in (even before considering the cost of repairs, taxes, transactions costs). So a seemingly “small” change in the achieved selling price has an outsized impact on the size of the “nest egg” for the homeowner. Property prices may not always go up, and having a relatively lower sale price may mean there is not enough money in the sale even to pay back the bank.
The people called “absentee” in this discussion may have very personal ties to EPA
Your landlord may come and mow your lawn every month and say hello to your neighbors or may come and fix your broken blind herself. She may live in Belle Haven and her kids may go to middle school in EPA. She may have grown up in the EPA home you are now renting. Or he may travel away for work every week or as a couple they may straddle obligations to elderly relatives who are spread apart across both sides of a family. Or as in the Scenario of Kayley, her parents may have passed away while living in their EPA home and they may just be trying to sell for the estate.
This ordinance won’t make tenants more secure
Any landlord who is able to, is likely to evict tenants and move in to their property first so that TOPA doesn’t apply. After they’ve been there for six months COPA won’t apply either. This is the only way for the landlord to avoid having the property tied up for months in the OPA process and to be sure they don’t have any liability for penalties. Whereas in a normal sale there might have been the chance for a tenant to continue with the new owner, these tenants will have to move away beforehand.
This ordinance won’t bring more housing to EPA
Developers who were considering constructing apartment buildings have already indicated this ordinance would cause them to withdraw. Without being able to sell the properties on a fully competitive market the developer cannot guarantee the investment returns needed to commit their capital.
This ordinance doesn’t keep value in EPA families
Any transfer to a stepchild, a niece or nephew of any home where the owner isn't in residence would need to go through the OPA process and any tenant or non-profit would have a higher right to buy the property than that relative - there is no way to ensure that extended family can get the property at a transfer.
The ordinance doesn’t favor long-standing EPA tenants
The rules in the ordinance that apply to tenants apply to any tenant no matter how recently they arrived or how small a portion of the property they occupy. Tenants who are most likely to be able to buy a property under TOPA are those with the greatest financial resources who can qualify for a large enough mortgage on their own - this could be someone who moved in to EPA just a month ago to start a job in a nearby firm doing a lot of hiring. Those tenants will have the option to hold up the sale of a homeowner who may have owned the home for 30 years, get priority to buy the home over local families the seller might have known for decades, and if they decide not to follow through on the purchase and instead buy a different bay area home, it will take the property off the market for a period.
This ordinance won’t protect families when a homeowner dies
Although the transfer to the heirs is free of OPA, what happens when multiple heirs inherit the property or the heirs are already living outside of EPA? The person who died wanted for the value of that property to go to their heirs in the proportions they asked for. When they need to sell, if they haven’t been living in the property for six months themselves, then their property has to go through OPA. Even after probate and the family decision-making about what to do with the property has happened, it will take months to close a sale - and the value of the property won’t be as high as without OPA.
This ordinance wasn’t properly noticed and discussed in our city
These were the only affinity groups that were consulted before the November 16th meeting, other than 10 homeowners and 7 other tenants who were part of focus groups. Are you in one of these groups? If not the City didn’t think your opinion mattered during the original development phase of this Ordinance. We have many homeowners in this city who are of Latino, Asian or European heritage, or Black people who came to buy in EPA since our city formed in 1983. None of these people are represented here.
This ordinance won't guarantee long term affordability
Qualified nonprofits and the city can purchase single family homes using OPA and then rent them out or resell them without any affordability restrictions.
This ordinance isn’t developed by EPA for EPA people
The work to develop this ordinance was funded by these large often tech-related foundations: Chan Zuckerberg Initiative, Meta (Facebook), Genentech, William & Flora Hewlett Foundation, David & Lucile Packard Foundation, Capital Impact Partners, CSH, San Francisco Foundation, LISC, Kaiser Permanente, Silicon Valley Community Foundation. They are looking for a place to experiment with new schemes and ways to get involved with the lives of people in a city who will put up with it.
This ordinance may not be legally valid
Here's the Fifth Amendment "Just compensation" clause.
The city EPA is not prepared for potential serious legal implications (Litigation) and extra expenses incurred, if this ordinance passes.