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O
OBLIGATION BOND A bond signed by a mortgagor (borrower) for an amount greater than
the loan amount. Such a bond creates a personal obligation on the part of the borrower and
assures the lender of recourse in case of nonpayment of property taxes and insurance or
past due interest on the mortgage.
OBLIGEE The person, such as a lender or creditor, to whom someone else is obligated
under a contract.
OBLIGOR Someone, such as a borrower or mortgagor, who owes a duty to perform under
a contract.
OBSOLESCENCE A loss in value due to a decrease in the usefulness of property caused
by decay, changes in technology, people's behavior patterns and tastes, or environmental
changes.
OCCUPANCY Physical possession and use of real estate.
OCCUPANCY PERMIT A permit required under the building codes of many local
governments which indicates that the property passes a final inspection. The permit
indicates that all applicable building codes have been met and that the structure is
suitable for occupancy.
OCCUPANCY RATE The ratio of the space rented to the total amount of space available
for rent. A 50-unit apartment complex in which 40 units are currently rented has an
occupancy rate of 80 percent (40:50),
OFFER A promise conditioned upon some requested or asked for act or promise. An
offer demonstrates intent by one party to form a contract with another party. In order to
be effective, an offer must contain three essential elements: 1. An offer must be an
expression of present contractual intent. This means that an advertisement or any other
preliminary negotiation could not, as a general rule, be an offer. 2. An offer must be
definite and certain in terms. Ordinarily an offer must include, either expressly or by
implication, the following: A- Identification of the parties to the contract B.
Description of the subject matter C. Time for performance D. Price It should be noted that
the law will allow a reasonable time for performance unless the phrase time is of the
essence is included which requires strict performance of all time obligations. The reader
must also be aware of illusory offers. Illusory offers are those which do not really bind
the offeror to any real commitment. 3. An offer must be communicated to the offeree. An
offer ordinarily can only be effective when the offeror volitionally (voluntarily)
communicates the offer.
OFFER AND ACCEPTANCE Two of the necessary components for forming a contract.
Together, offer and acceptance are referred to as mutual assent and if supported by
legally sufficient consideration, a contract is formed.
OFFEREE The person to whom an offer is made.
OFFEROR The person who makes an offer.
OFFER TO SELL Any attempt, either verbal or in writing, to induce or encourage
someone to acquire an interest in property.
OFFICE BUILDING A structure used primarily for the carrying on of business.
OFFICE OF INTERSTATE LAND SALES REGISTRATION An agency within the Department of
Housing and Urban Development (HUD) which has the responsibility for enforcing the
Interstate Land Sales Full Disclosure Act.
OFFICE OF THRIFT SUPERVISION (OTS) An office created under the Treasury Department
that replaced the Federal Home Loan Bank Board as the regulator of savings and loan
associations. OTS was created in 1989 as part of the Financial Institutions Reform,
Recovery, and Enforcement Act.
OFFICE PARK A parcel of land designed and developed to provide for a number of
separate or attached office buildings. Normally located in suburban areas such as next to
a beltway surrounding a metropolitan area, pffoce parks are intended to provide the users
with the facilities necessary to carry on normal business
OFFER AND ACCEPTANCE Two of the necessary components for forming a contract.
Together, offer and acceptance are referred to as mutual assent and if supported by
legally sufficient consideration, a contract is formed.
OFFEREE The person to whom an offer is made.
OFFEROR The person who makes an offer.
OFFER TO SELL Any attempt, either verbal or in writing, to induce or encourage
someone to acquire an interest in property.
OFFICE BUILDING A structure used primarily for the carrying on of business.
OFFICE OF INTERSTATE LAND SALES REGISTRATION An agency within the Department of
Housing and Urban Development (HUD) which has the responsibility for enforcing the
Interstate Land Sales Full Disclosure Act.
OFFICE OF THRIFT SUPERVISION (OTS) An office created under the Treasury Department
that replaced the Federal Home Loan Bank Board as the regulator of savings and loan
associations. OTS was created in 1989 as part of the Financial Institutions Re Recovery,
and Enforcement Act.
OFFICE PARK A parcel of land designed and developed to provide for a number of
separate or attached office buildings. Normally located in suburban areas such as next to
a beltway surrounding a metropolitan area, office parks are intended to provide the users
with the facilities necessary to carry on normal business. Such facilities include ample
parking, a well-designed road system, landscaping, restaurants and hotel facilities, and
an adequate supply of labor.
OFFICIAL MAP The land-use control used by local governments to designate and
reserve private land for street widenings, new streets, parks, and other public
improvements. OFF-SITE COSTS The costs of improvements that service a particular
lot or development, but that are not located directly on the lot. For a residential
subdivision, examples would include the costs of sewage treatment facilities, streets, and
streetlights.
OFF-SITE IMPROVEMENTS Physical improvements that affect the use and value of a
parcel of land, but are not located directly on the lot. For a residential subdivision,
examples would include streets, street lights, and curbs.
OFF-STREET PARKING Parking spaces which are located on private property rather than
directly on a public street. A minimum number of off-street parking spaces per so many
square feet of commercial or retail space is often part of a local zoning ordinance.
OIL AND GAS LEASE A right given by an owner (lessor) to another (lessee) for the
purpose of extracting oil and or gas from the land. An oil and gas lease normally runs for
a specific number of years and payment to the owner is in the form of a royalty based on a
percentage of the oil or gas taken from the land.
ONCE A MORTGAGE, ALWAYS A MORTGAGE A legal rule which states an instrument
originally intended as a mortgage cannot at some later date be converted into another
instrument such as a deed by either a clause in the instrument or an agreement between the
parties.
ONE-HUNDRED PERCENT FINANCING Action taken by a developer or investor which results
in all of the cost or the purchase price being financed with borrowed money and thus the
developer/investor does not have any equity in the property. Also known as mortgaging out,
the ability to arrange such financing is generally more prevalent with new construction
since the loan-to-value ratio will be based on the value of the property rather than on
the cost of the project.
ONE-HUNDRED PERCENT LOCATION The particular area or spot in the business district
of a city considered to be the best or prime location. The location might be an
intersection, a square block or a portion of the business or shopping district. Normally
such a location demands the highest rents in the area.
ONE-THIRD, TWO-THIRD RULE An appraisal rule of thumb stating that the first
one-third of a standard lot nearest the street contains half of the total value while the
rear two-thirds of the lot contains the other half of the value. While this is only a rule
of thumb, it can be useful for appraisers in the valuation of land being condemned through
eminent domain.
ON OR ABOUT The designation of an approximate date without a firm commitment to a
precise date. Real estate sales contracts may include a sentence stating "closing to
occur on or about June l' in which case June 1 would be the approximate closing date
rather than the exact date.
ON-SITE IMPROVEMENTS Physical improvements such as buildings, sidewalks, and
landscaping made inside the legal boundaries of the property.
ON-SITE MANAGEMENT Property management activities that need to be performed
directly on the premises. Such activities would include the showing of available space,
maintenance, and eviction of tenants.
OPEN AND NOTORIOUS Action by one party on the land belonging to someone else
sufficient to notify the owner that such a use may result in transfer of title through
adverse possession.
OPEN-END MORTGAGE A loan containing a clause which allows the mortgagor (borrower)
to borrow additional money at some point in the future without rewriting the mortgage. The
money which may subsequently be loaned will carry whatever the current rate of interest is
at the time the money is loaned. By writing such a mortgage, the lender eliminates the
time and paper work normally spent in processing and approving a loan.
OPEN HOUSE A marketing technique commonly used by real estate brokers to show
residential property by having it available to the public during particular hours, such as
from 1:00 to 5:00 Sunday afternoon. During the open house the broker or a representative
is at the house and is available to show the property and answer any inquiries made by
prospective buyers.
OPEN LISTING A type of listing agreement in which more than one broker may be
employed to sell the property and the owner pays a commission only to the broker who is
the efficient and procuring cause of the sale. This listing is also known as a simple
listing or a general listing and the owner is not obligated to pay anyone a commission if
the owner personally sells the property. Such a listing is often used by builders and
developers who agree to pay a sales commission to any broker who sells a house or lot in
their subdivision.
OPEN MORTGAGE A mortgage written without a prepayment clause and which thus can be
repaid in part or in full at any time during the term of the loan without the borrower
having to pay a prepayment penalty. Some mortgages are written so that the borrower can
only prepay 20 percent of the outstanding balance per year for the first five years,
otherwise a prepayment penalty is imposed.
OPEN SPACE Land which has not had improvements such as buildings and other
structures added to it. Such land is often left in a subdivision by a developer for
recreational use and enjoyment by those who buy lots in the development and as such the
land is dedicated to and maintained by either the subdivision or the local government.
OPERATING EXPENSE RATIO (OER) The relationship of operating expenses to potential
gross income or effective gross income. This ratio may vary with each type of property.
However, it can be used by an appraiser/ investor to compare a particular property with
similar-use properties. For apartment buildings the ratio generally falls between 35% and
45%; however, it may be as high as 50% if the landlord is responsible for paying all
utilities. Office buildings which are expensive to maintain can have ratios exceeding 50%,
while property leased under a net or net, net agreement will have a very low operating
expense ratio.
OPERATING EXPENSES Periodic expenses of operating income-producing property other
than debt service and income taxes. Operating expenses are those directly related to the
level of occupancy and usage of the building. These can include management fees,
maintenance, ground maintenance, utilities, supplies, legal fees, accounting fees, and
other such costs. These expenses when subtracted from gross income equal net operating
income.
OPERATING LEVERAGE The effect of increasing gross income while maintaining expenses
at a fixed or semi-variable rate.
OPERATION OF LAW The application of established rules of law upon a particular fact
situation.
OPPORTUNITY COST The economic principle that a prudent investor would pay no more
for a particular piece of property than for equally attractive substitutes, whether those
substitutes are real estate or other investments that promise to offer equal financial
benefits and the same risk.
OPTION A right, given for consideration to a party (optionee) by a property owner
(optionor), to purchase or lease property within a specified time at a specified price and
terms. An option is an offer which, because it is secured by consideration, cannot be
revoked. An option may be assigned to another person who may exercise the option. This is
an exception to the rule that only the offeree may accept an offer. Assignment is not
effective if the option itself prohibits the assignment or if the terms are dependent on
the personal credit of the original option holder. An option is irrevocable by the
optionor and will not be extinguished by death or insanity of either party.
OPTIONEE The holder or receiver of an option.
OPTIONOR One who gives an option to another.
OPTION TO PURCHASE LEASED PROPERTY A right given to a tenant in a lease to buy the
property within a specified period of time either at a predetermined price or at a price
to be mutually agreed upon at a later date. In some instances if the tenant exercises the
option then the rent paid up to that time is applied toward the purchase price.
ORAL CONTRACT An agreement that is unwritten or only partially written and thus
depends in whole or in part on spoken words of the parties to the contract. In order to be
enforceable any contract involving an interest in land must be in writing.
ORDINANCE A rule or statute enacted by the legislative branch of a local
government. Examples of ordinances directly affecting real estate include building codes,
housing codes, and occupancy regulations.
ORDINARY ANNUITY A series of equal periodic receipts or payments, receivable or
payable at the end of each period.
ORDINARY INCOME Income stemming from regular and recurring sources as contrasted
with capital gains or tax-free cash flow. Ordinary income includes wages and other
compensation, interest and dividends, rents and royalties, alimony, pensions, and proceeds
from life insurance in excess of premiums paid (excluded if received because of death of
the insured).
ORIGINAL EQUITY The cash down payment applied to purchase property.
ORIGINATION FEE The dollar amount charged by a lender to cover the time and
expenses incurred in arranging a loan. The fee covers such expenses as credit check,
employment verification, and appraisal of the property. Normally the origination fee is
stated as a percentage of the loan amount, for example, one percent.
OSTENSIBLE AUTHORITY Authority which a third person can reasonably assume that an
agent has on the basis of actions or inactions of the principal. This is so despite the
fact that the agent may not have actual authority. A third person may justifiably rely on
appearances and is not bound by secret instructions of the principal to the agent.
Consider the case where John delivers a car to Honest Joe, a used car dealer. Honest Joe
is instructed to sell the car for no less than $1,000. Honest Joe sells the car for $750
to Pam. Joe had apparent authority to sell the car at any price from the viewpoint of a
innocent third party purchaser. John therefore cannot refuse to deliver title to Pam
despite the fact that Honest Joe failed to obey his instructions.
OTHER PEOPLE'S MONEY (OPM) The use of someone else's money in the purchase of real
estate. The higher loan-to-purchase ratio, the more other people's money is being used,
and thus, the higher the leverage.
OUTBUILDING An accessory structure such as a tool shed or storage barn that serves
the main building or structure on the land.
OUTLOT (OUTPARCEL) A small parcel of land in a shopping center development that is
excluded from the mortgage in order to permit the developer to sell or lease the parcel
and thus not be in violation of the mortgage.
OUTSTANDING BALANCE The remaining balance owed on a debt such as a mortgage loan.
OVERAGE RENT (INCOME) Percentage rent based on retail sales, in addition to a fixed
base rent.
OVERALL RATE OF RETURN The mathematical rate obtained by dividing net operating
income by the selling price or value of income- producing real estate.
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Copyright © 2000
- 2007 Brenda Rose - Broker/Owner