Property Reference: O

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Option

In finance, an option is a contract whereby the contract buyer has a right to exercise a feature of the contract (the option) at future date (the exercise date), and the seller has the obligation to deliver the specified feature of the contract. Since the option gives the buyer a right and the seller (also known as a writer) an obligation, the buyer has received something of value. The amount the buyer pays the seller for the option is called the option premium.

Most often the term “options” refers to a derivative security, an option which gives the holder of the option the right to purchase or sell a security at a predefined time in the future, for a predetermined amount. (Specific features of options on securities differ by the type of the underlying instrument involved.) However real options are another common type. A real option may be something as simple as the opportunity to purchase a house at a given price at some period in the future. The writer has the obligation to sell the house to the option buyer for the price agreed in the option while the option buyer does not have to purchase the house at all, so again the buyer has received something of value. Real options are an increasingly influential tool in corporate finance.

Origination fee

A fee or charge for establishing a new loan. The fee usually varies from .5% to 2% of the loan amount.

Owner-occupier

An owner-occupier is a person who lives in a house that he or she owns. Owner-occupancy is therefore also called home ownership. This category of housing tenure is economically important for two reasons.

 

  1. In owner-occupancy, the landlord - tenant relationship is short-circuited. Consider two people, A and B, each of whom owns property. If A lives in B’s property, and B lives in A’s, two financial transactions take place - each pays rent to the other. But if A and B are both owner occupiers, no money changes hands, even though the same economic relationships exits; there are still two owners and two occupiers, but the transactions between them no longer go through the market. The amount that would have changed hands had the owner and occupier been different persons is called the imputed rent. The effect of owner occupancy is therefore that
    • * the imputed rents disappear from measures of national income and output, unless figures are added to take them into account.
    • * Government loses the opportunity to tax the transaction. Sometimes governments have attempted to tax the imputed rent (Schedule A of the U.K. income tax used to do this), but this tends to be unpopular because most people do not understand the concept of imputed rent.
  2. 2. In modern economies, variations in the rate of owner occupancy are a good index of the overall wealth of the nation, at least across time within a nation. Between nations, variations in traditions and in tax regimes make such comparisons hard to interpret.

  3. It is widely believed by politicians that owner-occupiers are more likely to vote for parties of the right, and such parties therefore often take steps to encourage home ownership.