Summary
In this section we have identified the nature of real property, as well as its accompanying rights. We have examined the physical and economic characteristics of land and distinguished real property from various types of personal property. We have defined the basic elements of the business of real estate and identified the professionals of real estate. Finally, we identified the basic types of real estate in the marketplace. Because each parcel of land is unique it must be specifically described so the parcel can be precisely located. We learned the methods of describing real estate that are either in common use today or that may no longer be used but will be found in recorded documents. These methods use monuments, metes and bounds, government surveys and subdivision plats to describe parcels of land with sufficient specificity to ensure that contracts and leases are enforceable and that deeds are valid to convey title.
Chapter 1: The Nature of Real Property
Bundle of Rights
Ownership rights and powers can be sold:
- Right to possess property
- Control
- Enjoy
- Exclude others
- Encumber
- Dispose of
What Is Real Property?
Everything attached to the land. Real property consists of:
- Surface rights
- Air rights
- Subsurface rights
- Improvements
- Fixtures
The Four Tests of a Fixture
- Method of attachment
- Constructive annexation (adaptation)
- Agreement
- Relationship of the parties
Appurtenances
Appurtenances run with the land. Physical appurtenances include:
- Fructus naturales
- Water occurring naturally
- Navigable waters
- Littoral land
- Riparian rights
- Prior appropriation
Easements — run with the land as an interest, benefit & ownership rights. A non-physical appurtenance.
Key Terms and Definitions
Appurtenance — A right, privilege or improvement belonging to and passing with the physical property. It’s not necessarily a part of the property. Example: A right of way through a neighbor’s land.
Assemblage — The combining of adjoining separate parcels of land into a single tract. Assemblage value (plottage value) refers to the increase in value that results when the parcels are combined, thereby creating a site that has greater value than the sum of lots individually considered.
Bill of Sale — An instrument that transfers title to personal property (chattels).
Bundle of Rights — Legal rights that go with the ownership of property.
Chattel — Personal property transferred by bill of sale.
Datum — Any point, line, or surface from which a distance, vertical, height, or depth is measured.
Fixture — Personal property that is permanently attached to real property and goes with the property when sold.
Fructus Industriales — Emblements. Annual plantings that require cultivation. They are considered personal property (crops).
Fructus Naturales — Trees, perennial plants and uncultivated vegetation. Considered real property. Examples: flowerbeds, property trees.
Government Survey Method — A method of land description that utilizes imaginary grid lines.
Improvements — Grading, ponds, buildings, fences etc. Characteristics of real property, a right within real property.
Littoral Rights — The lawful claim of a landowner to use and enjoy the water of a lake or sea bordering his land / oceans.
Lot, Block, and Subdivision Method — A method of land description utilizing recorded plats.
Meridian Lines — North-South lines in the government survey method.
Metes and Bounds Method — A method of land description utilizing measurements and boundaries.
Monument — (P.M.) Permanent reference marker / a boundary marker in a fixed identifiable position. May be man made (stake or post) or natural (boulder or tree). Used most commonly in metes and bounds land description.
Parallel Lines — East-west lines in the government survey method.
Plottage — The appraisal principle that holds that merging separately owned pieces of property into one large single lot will increase the value of the separate pieces.
Property — That which is legally owned by a person.
Real Estate — Land, realty, real property.
Riparian Rights — Legal rights possessed by owners of property that borders a river, a stream or other natural water course.
Situs — Location preference of a parcel of land from an economic standpoint.
Trade Fixtures — Personal property affixed to real property that is essential to a business and that is removable by the lease.
Real Estate — Physical land and improvements.
Real Property — Physical land, improvements, and the bundle of rights.
Bundle of Rights — The interests and benefits and rights inherent in the ownership of real estate.
Improvements — Valuable additions made to property that are intended to enhance its value.
Fixtures — Articles that were once personal property, but have been affixed to real estate so as to become real property.
Severance — Removing something attached to land.
Littoral — Rights to land bordering a sea, lake, or ocean.
Riparian — Rights to land that borders on or includes a stream or river.
Study Notes
The best definition that describes a parcel of land is … the surface of the earth extending down to the center of the earth and upward to the sky.
In determining whether an item is a fixture, we consider:
- Method of attachment
- Adaptation to the real estate
- Legal interests of the annexing party
- Relationship to the parties
The following items are personal property:
- Trade fixtures
- Patio furniture
- Portable dishwasher
A privacy fence is not personal property, it’s an improvement that enhances the value of the property.
The following are land improvements:
- Building
- Sidewalk
- Flowerbed
A corn crop is not an improvement … it’s personal property … it’s a fructus industriales … a lessee can come get the crops after a lease terminates.
You determine if something is a fixture by analyzing its:
- Manner of attachment
- Constructive annexation (adaptability)
- Agreement
- Relationship of the parties
Time of attachment has nothing to do with the fixture test.
Real property consists of:
- Air space above land
- Surface of land
- Subsurface mineral rights
- Improvements
- Fixtures
- Fructus industriales
- Water rights
- Appurtenances
- Easements
- Interests, benefits and ownership rights
Surface rights do not only consist of the right to control, occupy and use the surface area of a parcel of real estate, you also have enjoyment, improvement and growing crops.
In order to enhance the value of a piece of property, a reasonable relationship must exist between a particular parcel of real estate and the character of the improvement.
Fixtures are always real property.
Littoral rights only refer to lands that border seas, oceans, lakes … does not include all water rights.
Under “prior appropriation” system of water rights, someone may be able to divert water for his or her own use even if it is not fair to other owners.
Chapter 2: Physical and Economic Characteristics of Land
Physical Characteristics of Land
- Immobile
- Indestructibility
- Non-homogeneous (heterogeneity)
Economic Characteristics of Land
- Scarcity
- Area preference (situs)
- Permanency of improvements
- Production
- Assemblage
Key Terms and Definitions
Immobility of Land — It’s what makes the real estate market local in nature.
Accretion — Where the action of water causes land to build up on one parcel, subtractive from another parcel.
Erosion — Land is eaten away by the action of water and weather.
Heterogeneity — Land and improvements are not standardized due to difference in size, shape and location.
Situs — The area preferred of a parcel of real estate.
Production — The development of land and the construction of improvement.
Study Notes
The accumulation of soil on an owner’s property caused by the movement of water is called accretion.
The action of water causes movement of soil away from the property … this action is called erosion.
If you are choosing economic characteristics of land do not confuse them with real property characteristics: for example, “improvements” are characteristics of real property not economic characteristics.
Economic characteristics are:
- Scarcity
- Area preference (situs)
- Production
- Assemblage
- Permanency of improvements
Real estate developers who plan to build big construction projects must buy the different properties from three different owners. The developers are going through a process called assemblage.
Two developers complete two similar projects. The quality of the projects are the same and finished at the same time. The one likely reason why one development succeeds and the other doesn’t is “situs” otherwise known as the preferred area.
Because investments in real estate tend to be long-term, the real estate market is slow to respond to changes in demand.
The supply of land is fixed. One day there’s a chance that there will be none left to buy. You cannot make land.
Combining two or more pieces of parcels together is called assemblage.
An increase in value resulting from assemblage is called plottage value.
Real estate is unique and not like other commodities.
Chapter 3: The Nature of Personal Property
All property that is not real is personal.
- Chattel
- Trade fixtures
- Replacement fixtures
- Fructus industriales
- Severance
Key Terms and Definitions
Chattel — All valuable property other than real property. Personal property.
Chattels Personal — Examples are cattle, horses, cars, boats.
Chattels Real — Items of personal property that extend to an interest in real property such as a lease.
Chattel Mortgage — A mortgage secured by personal property.
Trade Fixtures — Articles of personal property that are necessary parts of a tenants trade or business that may be affixed to real estate and remain personal property.
Study Notes
All property other than real property is known as personal property.
Fructus industriales is another term for emblements / crops.
A bill of sale is used to itemize personal property. A bill of sale is not used for real estate.
Trade fixtures are:
- Articles of personal property
- Necessary parts of a tenants trade / business
- They do not include replacement fixtures
Trade fixtures do not belong to landlords.
Replacement fixtures are not recognized as personal property.
Note: Growing crops are known as fructus industriales. They are personal property. Even before harvest. A landlord cannot terminate a lease without giving a farmer the right to re-enter the land and harvest his crops.
Personal property is movable.
Stocks, bonds, notes and mortgages are considered to be personal property since they come in a physical form.
A bill of sale is to personal property as a deed is to real property.
Trade fixtures can always be removed from a leased premise once they are affixed.
Trade fixtures do not include replacement fixtures.
Chapter 4: The Real Estate Business
Real Estate Professionals
- Brokerage Firm
- Principal Broker or Employing Broker
- Salesperson and Associate Broker
- Client
- Prospect, Customer, Third Parties
- State Regulatory Board
- The Real Estate Market
Key Terms and Definitions
Client — The party employing the broker.
Customer — A party in a real estate transaction who does not employ a broker.
Brokerage Firm — Hired by a client.
Salesperson — Employed by a broker.
The Real Estate Board — Regulation body whose primary duties include making rules and regulations.
Supply and Demand — The mechanism that determines price in a free enterprise system.
Study Notes
An associate broker who sells a house for a client is paid a commission by the broker only.
A homeowner selling his house does not need a real estate license … however … the individuals below do need a license if:
- They are locating tenants for a property in return for a fee from the landlord
- They only work with buyers looking to purchase a residence and they compensated only by the buyers
- An individual who only negotiates options to purchase properties in return for a fee
The purpose of a state regulatory board is to protect the general public.
The actual amount of money paid for a particular parcel of real estate is said to be that property’s price.
Economic controls on the economy in general are enacted by both federal and state governments.
The free enterprise system is an economic system that operates to produce and distribute goods and services by the free application of the four factors of production:
- Land
- Labor
- Capital Investments
- Entrepreneurial Activity & Ability
When pricing is allowed to react to the principles of supply and demand, the free enterprise system determines what will be produced.
In an ideal market, the forces of supply and demand remain in balance with stable prices.
Our free enterprise system is not free from the government. In contrast, there are many government controls & economic controls.
Remember, the term price refers to the amount paid for a parcel of real estate in an actual transaction.
Supply and demand determine the price of land. No players involved determine the price, just the law of supply and demand.
Chapter 5: Types of Real Estate
- Residential
- Commercial
- Industrial
- Agricultural
- Recreational
- Special Purpose
- Public Property
Key Terms and Definitions
Residential Property — Dwelling places and land suitable for home construction.
Commercial Property — Office buildings, shopping centers and parking lots.
Industrial Property — Warehouses, plants & factories.
Agricultural Properties — Farms and ranches.
Recreational Property — Campgrounds and resort properties.
Study Notes
Private campgrounds are not likely to be public property. Public property includes: public parks, public schools, public libraries.
Industrial parks are not special purpose properties. Special purpose property is: churches, hospitals, nursing homes.
Horse ranches are not commercial property, ranches are agriculture. Remember, commercial property is office buildings, restaurants, vacant land suitable for commercial development.
Parking lots are not industrial property. Industrial property consists of warehouses, factories and utility plants.
Residential property is composed primarily of single family homes.
Seven types of real estate in the market:
- Residential
- Commercial
- Industrial
- Agriculture
- Recreational
- Special Purpose
- Public Property
Public property is owned by the government.
A mushroom farm is agriculture property.
A nursing home is special purpose property.
A hospital is special purpose property.
An industrial park is industrial property.
Chapter 6: Land Descriptions
- Monuments Method
- Metes and Bounds
- Government Survey
- Lot, Block, and Subdivision (Recorded Plat)
- Vertical Land Description
- Land Descriptions Not in Use
Key Terms and Definitions
Metes and Bounds Method — Used to describe an irregular shaped parcel of land.
Monuments Method — Uses naturally occurring physical features of land to determine boundaries.
1 acre = 43,560 square feet.
Recorded Plat Method — Used to describe a subdivision.
Study Notes
An adequate metes and bounds description will have:
- A definite point of beginning
- Closure
- Linear measurements and compass directions
Metes and bounds / irregular shaped land / not four sides.
An informal reference is adequate for use in a rental agreement.
Note: Ad Valorem = According to value.
If necessary, land can be legally described by referring to other publicly recorded documents.
Both the parcel of land beneath the air lot and the elevation.
A datum is used to describe both air and subsurface rights.
The government survey method is used in the majority of states in the United States.
Note: Eminent Domain — Taken property / the state takes it / must provide market value to the one taken from / the power of government to take for public use.
The best description of a parcel of land is … the surface of the earth extending down to the center of the earth and upward to infinity.
Mobility is the characteristic that distinguishes the personal property from real property.
Appurtenances run with the land: Example: Riparian rights, a garage, an apple orchard.
A trade fixture is not an appurtenance … it’s a removable piece of property.
Real property is severed through severance to change it to personal property.
Physical characteristics of land:
- Immobility
- Heterogeneity / Uniqueness
- Indestructibility
Note: Situs is a preferred area.
All property other than real property is considered chattel (personal property).
A legal land description must be sufficient to identify the property.
One (1) acre of land is 43,560 square feet.
The following terms are used to refer to land description methods adopted due to western expansion:
- Government survey system
- Geodetic survey system
- Rectangular survey method
Land located in a rural area of an eastern state would most likely be described as Metes and Bounds.