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.
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OBLIGEE The person, such as a lender
or creditor, to whom someone else is obligated under
a contract.
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OBLIGOR Someone, such as a borrower
or mortgagor, who owes a duty to perform under a contract.
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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.
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OCCUPANCY Physical possession and
use of real estate.
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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.
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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),
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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.
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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.
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OFFEREE The person to whom an offer
is made.
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OFFEROR The person who makes an
offer.
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OFFER TO SELL Any attempt, either
verbal or in writing, to induce or encourage someone
to acquire an interest in property.
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OFFICE BUILDING A structure used
primarily for the carrying on of business.
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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.
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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.
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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
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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.
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OFFEREE The person to whom an offer
is made.
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OFFEROR The person who makes an
offer.
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OFFER TO SELL Any attempt, either
verbal or in writing, to induce or encourage someone
to acquire an interest in property.
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OFFICE BUILDING A structure used
primarily for the carrying on of business.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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ON-SITE IMPROVEMENTS Physical improvements
such as buildings, sidewalks, and landscaping made
inside the legal boundaries of the property.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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OPERATING LEVERAGE The effect of
increasing gross income while maintaining expenses
at a fixed or semi-variable rate.
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OPERATION OF LAW The application
of established rules of law upon a particular fact
situation.
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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.
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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.
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OPTIONEE The holder or receiver
of an option.
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OPTIONOR One who gives an option
to another.
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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.
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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.
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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.
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ORDINARY ANNUITY A series of equal
periodic receipts or payments, receivable or payable
at the end of each period.
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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).
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ORIGINAL EQUITY The cash down payment
applied to purchase property.
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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.
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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.
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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.
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OUTBUILDING An accessory structure
such as a tool shed or storage barn that serves the
main building or structure on the land.
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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.
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OUTSTANDING BALANCE The remaining
balance owed on a debt such as a mortgage loan.
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OVERAGE RENT (INCOME) Percentage
rent based on retail sales, in addition to a fixed
base rent.
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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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