Glossary - O

Objective value: In simple words, the term objective value denotes the value of a property laid down by the market. The expression is also defied as the value of a property founded on the study of the expenses involved with the reproduction of that asset (a precise duplication) or one that is of identical superiority (a replacement). Usually, the replacement cost is used more widely as it is difficult to collect precise information or assess the value of the property through the duplication method.
The objective value of a property performs a crucial role in finding out the worth through the cost method. It may be noted here that there are basically two schools of thoughts regarding the perception of value. While one school highlights the objective nature of value as it associated with the real production expenses involved in developing the property (known as the cost approach), the other school, who represent the advocators of subjective value, are of the view that value is real only in the mind of the prospective owners, buyers, sellers, and users of real estate (known as the direct comparison approach). In fact, both the methods mentioned above and representing the two diverse schools of thoughts are used in the evaluation procedure of residential property. Nevertheless, commercial real estate practitioners rely greatly on the direct comparison approach.
Observed condition/ method: The term observed condition refers to a technique to estimate the accumulated depreciation that individually judges and approximates the subtractions for the physical wear and tear, practical extinction and fiscal obsolescence. Later, these approximations are added up to present a round figure to be subtracted from the cost for a new reproduction of the property.
Obsolescence: The term obsolescence denotes a loss in the usefulness of an asset owing to the development of enhanced or better quality equipment, but not as a result of physical deterioration. In matters pertaining to real estate, it refers to a significant decline in the competitiveness, utility or value of a property. Usually, obsolescence takes place owing to the availability of better or cheaper alternatives or due to shifts in user preferences, requirements or styles. Obsolescence renders a property less attractive and less valuable for continued use in the market. It may be noted here that obsolescence is different from the decline in the value of a property owing to physical deterioration or normal wear and tear. In fact, the insurance firms take obsolescence into consideration to lessen the amount of claim to be paid on a damaged or destroyed property.
Occupancy agreements
Occupancy permit: The term occupancy permit refers to a document issued by the local authorities or municipality to a real estate developer allowing the building to be occupied by the members of the public. Most often, real estate developers in new construction encounter occupancy permits that are issued only when the property fulfills all municipal guidelines and building standards. Issuing the occupancy permit usually denoted that the construction is in conformity with public health and building regulations. A real estate developer is issued an occupancy permit following the receipt of zoning and sub-division approvals and passing the inspection by code enforcement officials. It may be noted here that an occupancy permit is not a declaration that all the building work is necessarily complete. Nor is it a certificate that states that all building work complies with the relevant legislation or contract. In simple words, an occupancy permit is issued when a building is "suitable to occupy" from a health and safety point of view.
Offer, Offer process: In the real estate context, the term offer denotes a voluntary, but conditional proposal that is submitted by a potential buyer (also known as offeror) to a property owner (offeree) for acceptance and becomes legally enforceable or converts into a contract if the offeree accepts it. Unlike a solicitation, an offer is an obvious sign of the offeror's keenness to enter into an agreement under particular terms, and is made in a way that a sensible person would comprehend its acceptance will result in a binding contract. Offers normally include a closing date, if not a period of 30 days after the date of offer is usually assumed. In matters pertaining to real estate, the buyer usually makes a written offer to purchase a property, which the seller may accept, reject or counter. Unless there is any specific clause, an offer may be withdrawn any time prior to its acceptance. In the event of an offer being rejected, it cannot be revived without the consent of the person who made the offer.
Offer to lease: An offer to lease refers to a proposal, which, when accepted, signifies an agreement between two parties to enter into a lease. An offer to lease actually lays down the essential terms and conditions regarding the lease, such as the full names of the landlord and the tenant, covenants of the landlord and the tenant, the date of the lease, the term of the lease, rental payments, the address of the property, and other issues that are mutually agreed by both parties.
Offer to purchase: The term offer to purchase denotes a proposal from a prospective buyer to a seller expressing his or her willingness to acquire the property. Several provincial regulatory organizations, provincial real estate associations in specific cases, usually make pre-printed offer forms available for different kinds of properties, including residential, commercial, farm and condominium.
Open house: In the context of real estate, the expression open house refers to the time when a property offered for sale is open for inspection by prospective buyers or other interested parties. In fact, authorized salespersons and brokerages show listed properties by inviting other brokerages or the public to inspect the properties put on sale during specific hours on particular days. Usually, most houses for sale on the market are open on weekends.
It may be mentioned here that most property sellers working with real estate brokerages come across two types of open houses. The first type is known as the salesperson's open house and is usually made available to all salespersons in the brokerage and co-operating brokerages in the instance of Multi Level Service (MLS) listings. Visits for physical assessment of properties for salespersons may be arranged on particular days of the week and/ or by the geographic locale. The second kind of open house is an open invite to the general public to inspect the listed property on a specific day and specific time. During the last few years there have been variants of the open house perception, especially in the area of higher-range residential property where open houses are offered only through specific invitations.
Open listing: The term open listing refers to a property that is marketed by several real estate agents at the same time. One of the reasons for adopting this method may be that the seller wants to dispose off the property as quickly as possible. In this case, the seller provides the listing of the property to several brokerages simultaneously without the responsibility of having to recompense any one, except the brokerage that is first to secure a buyer who is prepared, keen and capable of fulfilling all the terms and conditions set out by the seller or a brokerage that is able to obtain the seller's acceptance to an agreeable purchase offer from a prospective buyer. It may be noted that there is substantial disparity in the application as well as meaning related to open listings. In actual practice, an open listing can be in writing and entail two or more brokerages on an ordinary basis. In this case, the seller may issue a simple letter of introduction assuring that the brokerage will be paid if it can secure a buyer who will acquire the property in a precise time frame or the seller may offer a simple verbal assurance in this regard along with the basic details of the property.
Open mortgage: An open mortgage refers to a loan secured against a property and that can be repaid any time prior to its maturity date without having to pay any penalty. Normally, open mortgages charge a higher rate of interest compared to any ordinary mortgage. Nevertheless, lenders usually do not prefer open mortgages as the early clearance of the loan lessens the amount of interest they can earn from the credit. However, borrowers ought to exercise caution while dealing with an open mortgage as the expression 'open' is dependent on specific qualifications and constraints. While securing an open mortgage borrowers ought to always consult original source documents.
Operation of law: Commonly, the phrase operation of law refers to a routine legal process whereby a right or liability is created or terminated irrespective of the objective of the concerned party. For instance, if an individual expires without leaving behind a will, his or her successors are decided by operation of law. In the context of real estate, the term operation of law is one of the five commonly standard procedures by means of which an agreement may be absolved. For instance, an agreement may be terminated by operation of law in the event of a party becoming insolvent. In addition, the operation of law can amalgamate the rights and liabilities specified in an agreement into an ensuing advanced contract. For instance a warranty regarding some part of a property may combine or come to an end at the closing provided there is no precise phrasing in the agreement or contract that evidently affirms that such assurance will continue to exist at the closing. An agreement may also be terminated by operation of law when any party modifies the contract without securing the assent of the other party.
The other four procedures by means of which an agreement may be terminated include performance, mutual agreement, and breach of contract as well as impossibility of performance.
Opportunity cost: The term opportunity cost, also called economic opportunity lost, denotes the value of the next best substitute missed while making a decision. For instance, if an asset like funds is utilized for one purpose, the opportunity cost is the worth of the next best reason the funds could have been utilized for. In economics, opportunity costs are basic costs and are made use of in calculating the cost benefit examination of any venture, but are not considered as a tangible cost in matters pertaining to accountancy.
In the context of real estate, the expression opportunity cost is made use of in evaluation, capital budgeting and also in realty outlays founded on the perception of prospects gone astray. It may be mentioned here that any decisiveness to make an outlay encompasses an allied expense, such as the missed prospect in an analogous venture. Like a lender who adds an interest fee to the principal amount borrowed out to enable him or her to make the original investment to amplify into a bigger sum, a financer also ought to relate an opportunity cost to any investment choice. Normally, the opportunity cost is calculated by evaluating other ventures that would yield a similar and suitable income. It is important to note that when the investors do not have access to reliable market data, they habitually depend on mortgage and bond markets to set up the basic opportunity cost, also called risk-free rate. This support cost added with a risk payment, considering the investor's notion of risk, is attached to the concerned real estate asset.
Option: Generally speaking, the term option, also called an option contract, refers to an agreement that enables an offer to remain open for a specified period during the time period a person making an offer is unable to pull out of the tender. In matters pertaining to real estate, the expression denotes an ongoing offer of agreement by means of which the real estate asset proprietor, in return of a commission or fee, consents to allow another person to purchase or lease the real estate property at a set fee during a particular time.
Option commission agreement: The phrase option commission agreement denotes a contract utilized along with an alternative to purchase pertaining to the imbursement of a fee in the case where an option is either applied or not applied. Usually, the contract also includes a state of affairs where the alternative is not implemented, but a charter comes into existence between the two concerned parties associated with a real estate asset. Generally, a commission contract arises as an element of the preprinted choice to buy or purchase procedure.
Option to buy / purchase: In matters pertaining to real estate, the phrase option to buy or purchase refers to a privilege granted to the owner of a real estate to another, for important contemplation, to purchase a specific property in a stipulated period and at an approved cost.
Order of possession: The phrase order of possession refers to a court directive that allows a contender to take possession of or inhabit vacant properties. Usually, a mortgagee acquires an order of possession from the court of law to take the custody of mortgaged premises in the event of a default by the borrower or such a directive is sought by a property owner to wants to evict illegal occupants of his or her property. Special stipulations are usually applicable in the instance of residential tenancies to abolishment and orders of possession. The term with reference to such directives may differ from one provincial jurisdiction to another.
Order of sale: The term order of sale is often incorporated into mortgage deeds to denote that the mortgagee or the lender is entitled to sell the home with a view to get back the full principal amount as well as the total interest accrued on it. In majority of the cases, the mortgagee is able to sell the homes without the approval of any court of law. Usually, the mortgagee makes use of an order of sale when there is a default on the part of the borrower or mortgagor. If any surplus money received from the property's sale proceeds is left after covering the mortgagee's principal amount, interest charges and costs incurred in arranging the sale, it is handed over to the borrower.
Origination: Generally speaking, the term origination denotes the procedure or action of bringing something into existence. In matters pertaining to real estate, the expression refers to the making of mortgage loans. In other words, it denotes the organizational procedure to set up a mortgage together with the readying of relevant documents.
Origination fee: The term origination fee refers to a charge enforced by a lender on a borrower to include the expenses concerning the handling of a mortgage loan application. Such charges comprise credit check, title search and, in a number of cases, they are associated with interest and are likely to be taxable. This term is usually come across in the United States and denotes the fee taken by a mortgagee (lender) from the mortgagor (borrower) to deal with a mortgage request, get ready relevant papers and register these documents on title or ownership. In fact, the origination fee is usually a fraction of the mortgage loan secured by a borrower. Most lenders in Canada also charge a processing or application payment to include the preliminary expenses concerning the usual, residential mortgages. In the event of the loan percentage being excessive, a payment to GE Capital Mortgage Insurance Company or Canada Mortgage and Housing Corporation is pertinent. Nevertheless, any such payment is usually not considered to be the same as the phrase origination fee.
A close parallel may be drawn with the large commercial loans in Canada. The Canadian banks impose a procedural or setup fee usually founded on a proportion of the total loan sum. Even the mortgage brokers (agents) are entailed to origination fees in accordance with the different parameter defined in the provincial laws, for instance, prerequisites regarding disclosure statements and collection of payments or fees.