Level 1 - Chap 2: Estate and Interest

Modification

Building off of situs, modification refers to the fact that the value of land can be affected by human-made changes to the land. If the city decides to build a park in a particular zip code, then the houses that border that park will probably appreciate in value. This is also true if the city decides to add a train stop near a neighborhood. A great example of this is Orlando, Florida: After the construction of Disney World, the farmlands that surrounded the theme park suddenly appreciated in value. People desired the land for new hotels and homes for people who worked at the park, and for businesses to serve the amusement park workers, etc. Put simply: Human-made changes (modifications) can affect the value of land.

Fixing to Get Real While annexation (physical attachment) tends to be what we think of when talking about how fixtures convert from personal property to real property, there are other ways this can happen, including:

Close Association: A conceptual linkage to the real property, such as a garage door opener Adoption: Customization of personal property for use with real property, such as drapes cut for a window in a room with a vaulted ceiling Agreement: When the parties to a contract agree that personal property will remain with the real property (get it in writing!)

Rule of Capture

A discussion of mineral rights should always include the rule of capture, which states that a landowner who drills a well for gas or oil on their land is entitled to all that well produces — even if the gas or oil migrates from beneath a neighbor's property. This rule acknowledges the fact that gas and oil will flow in the direction of the lowest point of pressure, which will be at the well's entry point into the reservoir that potentially extends beneath property owned by multiple parties.

Fixtures: Converting Personal Property into Real Property

A fixture is an object that was once personal property but is now firmly attached to the land in such a way that it is considered to be real property. This conversion process from personal property to real property is called affixation or annexation.

Interference of Rights (cont.)

A third form of interference has to do with being a nuisance. A nuisance interferes with the property owner's right of quiet enjoyment. Loud noises, bad smells, and unsightliness are a few common examples of nuisances. That little brother of yours that had to be bribed to go away when you were trying to get all smoochy-smoochy with your high school boo? Now, that's what I call a real nuisance!

Air Rights, are

Air rights are the rights to use the airspace above a property. These rights may be sold or leased independently of the tract itself. That said, the rights associated with the airspace above the land has not traditionally come into play often in property ownership and reasonable allowances for commercial air travel are generally assumed.

Illiquidity

An asset's state of relative difficulty in converting to cash without loss of value. (The concept that property is an illiquid asset because it cannot easily be sold or exchanged for cash).

Riparian Rights

An owner's rights in land that borders on or includes a stream, river, or lake. These rights include access to and use of the water. Or rights that govern the use of flowing water, such as rivers and streams that pass through or border a property.

Personal Property vs. Real Property (cont.)

Another important distinction between personal property and real property has to do with how ownership is conveyed. Personal property: conveyed by bill of sale or by bequest in a will Real property: conveyed by deed

Real Estate vs. Real Property Now that we've covered the various rights associated with property ownership, it's time to answer the question you have undoubtedly been asking yourself: What is real estate and how does it differ from real property?

Answer: Real estate is the land and any improvements that have been added to it, whereas real property is all that plus the bundle of rights associated with the property. Note: Don't forget that land is the surface of land to the center of the earth and upward to space!

Personal Property Best Practices

Because personal property can often be a source of confusion or contention in a real estate transaction, a license holder would be wise to discuss (with the seller) the differences between personal and real property. Get the seller's intentions regarding the personal property they do (or do not) intend to include with the sale of the real property in writing. This documentation can be included on a listing agreement and/or sales contract.

Personal Property by Any Other Name Personal property is also known as personalty or chattel.

Because the word chattel is likely something you've not come across before, here's a popular memory tool: "Since personal property is moveable and chattel is personal property, cattle can be chattel." Just a little rhyme for ya. Remembering this for a test in the future might be helpful. 😉

Surfacing the Legal Description of Land

Call it a fun fact. Call it real estate trivia. Or, call it something that might appear on a quiz, test, or exam coming your way. Call it what you may, there is something you need to know about the legal description of land: When land is described in legal documents, it is only the land's surface details that are provided. Because the legal definition for land already encompasses and assumes the subsurface below and airspace above the land, there is no need to explicitly document that.

Accretion vs. Avulsion

Figuring out whether change in land due to water is accretion or avulsion is surprisingly difficult. It ultimately depends on the definition of words like "sudden" and "gradual," which is usually determined by the courts.

Other Fixture Examples

Here are a few additional examples of fixtures you may be familiar with: Chandeliers (They're like a tiara for your ceiling!) Garage door openers Shelves Bidets (Are you trying to make a robot blush?)

Severance in the Natural World

If a homeowner has wild blackberries growing along the stream that runs through their backyard (how lucky!), and plucks the berries from the bushes for their breakfast cereal, their act of severance has converted the berries from real property to personal property... very tasty, bite-sized personal property.

Appurtenances (cont.)

If an oil company, for example, obtains rights to the oil accessible beneath a piece of property, should that property be sold again in the future, the property owner would convey all rights to the buyer EXCEPT the oil rights that were no longer the landowner's to sell. The new buyer would have to honor the pre-existing oil rights of the oil company.

Easing into the Water (cont.)

In Briggs v. Di Donna, the owners of a large parcel of waterfront farmland on Saratoga Lake, partitioned their property into several smaller lots — some of which retained coastline while others were landlocked. But in the process of partitioning the land, the original owners chose, by way of deed, to grant to the newly formed landlocked lots an easement to the water's edge that would pass through the western boundary of one of the newly formed waterfront lots.

Easing into the Water

In New York, and in most states, the enjoyment of littoral or riparian rights has long been considered the exclusive privilege of the owners of waterfront property. In fact, if a parcel of waterfront property were to be partitioned into multiple lots such that any of the newly formed lots were landlocked, those lots not physically touching the water's edge would be thought to have lost their littoral or riparian rights. That notion was tested in a New York court case originating in the town of Malta in Saratoga County.

Land's Economic Characteristics

In addition to its physical characteristics, land has economic characteristics that set it apart from personal property: Scarcity Situs Modification Fixity Illiquidity

Fructus Naturales vs. Fructus Industriales

In our earlier conversation about improvements, we discussed the concept of natural attachments. To decide whether plants should be considered personal property or real property, examine their use and the duration of their existence. Trees, persistent decorative plantings, (such as perennial landscape plants), and uncultivated plants are referred to as fructus naturales and are usually considered to be real property because of their permanence. Annually-cultivated crops are called fructus industriales, or emblements, are generally considered to be personal property, even prior to harvesting.

Subsurface rights may be sold separately from surface rights.

In the event that two parties each hold an interest in a property — one holding the subsurface rights and the other holding the surface rights — the holder of subsurface rights has priority and may legally enter the property to extract the minerals they have rights to, but they must take care to not materially disturb the surface.

Appropriative Rights

Independent of land ownership claims, however, are appropriative rights, which are water rights granted by the government to take water from a body of water for a specified and approved use. An example of this would be a farmer who needs water for crops from a nearby lake. The approvals are not limited to those holding riparian or littoral rights, but their concerns are considered. Think water Dam.

Land's Physical Characteristics, Again

Indestructible: Good luck destroying land! Immobile: Good luck moving land! Non-homogenous: All parcels of land are unique, just like you.

Land = Non-homogeneous

Just like every Real Estate Agent student (that's you!), every parcel of land is unique. There is no parcel of land that is exactly the same as another parcel of land. Even two identical lots in a basic subdivision are unique in that they differ in their position on the earth.

Land = Indestructible

Land is pretty tough to destroy. In fact, it's indestructible. No matter what humans or nature may try to do to a plot of land, it will still be there afterwards. Land can be trashed, flooded, or burned to a crisp, but the land will still exist. Land may: Go under water Become a crater Have improvements added to it (like houses) But whatever happens, the land will still be there. It's... indestructible, remember? And that's something you can't say for personal property.

Supporting Rights (cont.)

Lateral support is provided by adjacent properties, while subjacent support comes from the underlying earth. If a landowner were to engage in excavation or other underground activities on their own property that caused shifting or otherwise disturbed a neighboring property, they could be held liable for damages.

Littoral rights govern

Littoral rights govern lakefront or oceanfront property and usually allow the property owner to use the water bordering their property. Littoral use prohibits the property owner from artificially changing the water's location.

Getting Personal with Minerals Here's a fun fact for you:

Minerals are no longer considered real property once they have been extracted from the ground. In the process of being extracted from the land, they move, categorically, from real property to personal property. (You'll learn more about the differences between real and personal property and how one can become the other a little later in this chapter!)

Navigating the Question of Ownership (flowing water)

Navigating the Question of Ownership Building on English common law, U.S. laws regarding ownership of land beneath certain bodies of water tend to pivot on the concept of navigability. Where riparian rights (flowing waters) come into play, and the water is considered navigable, the land owners to each side of the water own the land just to the water's edge. For non-navigable water, their ownership extends to the midpoint beneath the flowing water that divides their property.

Water Under the Property

Now that we've talked about water that borders or runs through a property, what about the water that lies beneath it? Who owns that? Glad you asked! (Or glad that you're glad that I asked.)

Quick Recap: Land's Economic Characteristics

One more time with feeling, land's economic characteristics are: Scarcity: The supply of land is finite. There are no coastal property factories. Situs: People prefer land for its location, both for natural (beach) and human-made reasons (good schools). Modification: Human-made improvements can affect the value of land (new amusement park nearby). Fixity: Land is a long-term investment. It can't be moved, and investors must seriously consider a real estate property before purchasing. Illiquidity: Land does NOT convert to cash very quickly relative to many other asset types.

Personal Property vs. Real Property (cont.)

Personal Property vs. Real Property (cont.) Personal Property = A moveable asset Real Property = The land + permanent improvements So, personal property is any unattached, movable asset on the property that is not considered real estate (land plus improvements). Personal property is also known as chattel or personalty (we'll talk about this shortly). With these definitions in mind, you can see how a ceiling fan, while still in its original packaging, would be personal property. But, once attached to the ceiling, that same fan would be considered real property — having been firmly attached to the existing real property, the house.

Real Estate vs. Real Property (cont.)In other words:

Real estate = land + improvements Real property = land + improvements + bundle of rights Another way to look at it is that real estate refers solely to the tangible aspects of a property (both land and human-made improvements), while real property is more of a concept in that it comprises the physical and more — the "more" being the accompanying bundle of legal rights of ownership we discussed earlier.

Land's Unique Physical Characteristics

Real estate is attractive to many investors because it involves land, which we define as the surface of the earth to the center of the earth and into space. (Whoa.) These characteristics are: - Indestructibility - Immobility - Non-homogeneity

A Bundle of Rights

Real estate ownership includes a set of legal rights. That's right — you don't just get the land, you also get certain inherent privileges that come with the land that ensure you can enjoy it to the fullest if you so desire. These rights are typically referred to as the bundle of rights, which we'll discuss in more detail now... A Bundle of Rights (cont.) What rights are included in that bundle of rights? The Right of Exclusion: The right to tell Aunt Sally that she can't trespass on your property The Right of Possession: The right to occupy/live/breathe on your property, no matter what Aunt Sally has to say about it The Right of Disposition: The right to sell, lease, and/or will a property to Aunt Sally or whomever (You have the right to transfer all of your property rights or just some of them.) The Right of Quiet Enjoyment: The right to (legally) use the property for your enjoyment however you (legally) want, no matter what The Right of Control: The right to alter, change, or improve the property as the owner sees fit (Sorry, Aunt Sally, you have no say-so.)

Illiquidity (in real estate land economics)

Refers to an asset's state of relative difficulty in converting to cash without loss of value. Think about it, you future RE Agent. If you owned property that appraises at $250,000 in upstate New York, chances are that, given the right amount of time, you would be able to sell it for close to that amount, right? However, if I told you that you HAD to sell the property by end of day tomorrow, you'd probably have to drop the price to a crazy-low figure to get someone to commit that quickly. This example demonstrates that property has a relatively high degree of illiquidity. It takes a little time to convert it to cash, and to rush the process, you would likely have to drop the price (and lose value) significantly.

Fixity

Refers to the fact that real estate exists in a fixed location and cannot be moved. (This economic characteristic is very similar to the physical characteristic of immobility.) Fixity describes this truth about land (it can't be moved) from an economic viewpoint. Fixity is super important to people who invest in real estate. In contrast to investments in personal property, investing in real estate tends to take a lot more money up front and takes a long time to pay off. It's not a liquid asset. It can't be packed up and moved or quickly converted to cash. Because of fixity, investors must carefully analyze the long-term nature of owning property.

Appurtenances

Rights associated with real property that usually convey (transfer) when property ownership changes include: rights of access; air and water rights; and mineral, gas, and oil rights, among others. Note: They can also be sold individually and separately from the land, and the selling of those rights earlier can impact later real estate transactions.

Riparian vs. Littoral: Pro TipHere's a quick, cheap way to remember the difference between riparian and littoral rights:

Riparian vs. Littoral: Pro TipHere's a quick, cheap way to remember the difference between riparian and littoral rights: Riparian = River Littoral = Lake Of course, it's not really that simple. Riparian water includes all flowing rivers and streams, and littoral water includes lakes and oceans. Additionally local laws and ordinances regarding water rights will always prevail. But, for any exams that come your way, this is a good way to think about it.

Natural Attachments

Similar to (man-made) improvements to property, we also have natural attachments. These would include trees, plants, shrubs, and native growth that people have added to a property that, once planted, are also considered to be part of the land and, therefore, real property.

Personal Property vs. Real Property Now that we've talked about the difference between real estate and real property, let's continue the discussion with a comparison between personal property and real property.

Since the law classifies all property as either personal or real, it's important to understand the differences. Hint: The primary distinction is found in the permanency of the property being considered.

Interference of Rights

Some humans show a tendency that we robot types rarely do — the tendency to interfere. Even with the bundle of rights, interference is a thing. Here are two forms of interference that are related: Put another way... Trespass = violation by human Encroachment = violation by objects (like your neighbor's fence crossing over your property line)

Land = Immobile

The next time you go on a road trip, you may take some of your favorite personal property (smartphone, shoes), but you won't be taking your land with you. Why's that? Because you can't move land. It's immobile. When a buyer purchases personal property, they can move it to a new location — wherever their little buyer heart desires. When a buyer purchases land, however, they must go to the land. They cannot move the land to where they are.

Encroachment

The physical invasion of land by an object onto land without lawful right to do so(intrusion on a person's territory, rights, etc.)

Accretion

The process that results in the gradual increase in land area through deposits of soil by natural forces.

Accession

The right to all that one's own property produces, including that which is added, either naturally or by human action, to the property already owned.

Scarcity

There aren't too many land factories out there (zero, to be exact). So if a city suddenly grows in popularity and more people want to live near its downtown, not everyone will be able to. There are only a finite number of parcels of land that are close to the downtown area. Its the economic characteristic that informs the economic principle of supply and demand. The supply of land will never increase, but the demand for land will increase as the population grows. And this is because land is scarce.

Situs

To the economic significance of a property's location. The popular real estate phrase, "location, location, location," is referring to the preferences people have for certain areas. Situs takes into account not only the geographical location of property, but also the economic qualities of that area that make it more or less desirable. Example: A buyer wants to move from a rural area to a home in a nearby city because the city has a strong local economy with plenty of job opportunities. The buyer is influenced by situs.

Trade Fixtures: The Exception to the Rule

Trade fixtures are different from other fixtures in that the tenant can usually take trade fixtures with them when they leave. A trade fixture is personal property that is owned by and needed for a tenant's business. (For example, shelves that a store owner attaches to the wall when leasing a storefront in a strip mall.) It is not subject to the same rules of transfer as fixtures in general. The shelves belong to the tenant. They are fixtures, but the shelves are for the business of the tenant or the tenant's trade. The tenant is allowed to take the trade fixtures with them when their lease is over. Unlike a tenant in a residence who improves the property, trade fixtures are property of the tenant.

Percolating water rights

Water underground that is drawn by wells. Some local health codes may restrict the use of this.

Lesson's Learned (water)

What we learn from this is that water rights are not cut-n-dry. (Insert "dry" joke here.) Like may aspects of real estate, court decisions regarding water rights have helped formulate present-day law and understanding. While it is helpful for you to be aware of cases like this, do not try to ascertain applicable water rights or interpret deeds or easements for your clients. Instead, suggest they get appropriate legal counsel if they have questions about the specific water rights attached to a property.

Almost Great Moments in Severance History

When George Washington famously chopped down that cherry tree, it was a great act of severance. OR WAS IT? Technically, since the fruit tree was an emblement, it was ALWAYS considered personal property. Severance was totally unnecessary. Sorry, George. I cannot lie. You understand... right?

Water on the Property

When a property borders a body of water or a river, the right to enjoy the water is usually included in the bundle of rights. These are called the water rights. There are two types of rights associated with waterfront properties: riparian rights and littoral rights.

Navigating the Question of Ownership (cont.)

When evaluating littoral water rights, the water is always considered navigable, so ownership is always only to the water's edge. And when there are tides involved, the water's edge, for ownership purposes, is the considered to be the mean high water mark (high tide).

What's Up, Dock?

When the new owners of the landlocked lots decided to exercise full enjoyment of their littoral rights by building a boat dock that would be used in common, the new owners of the waterfront lot containing the easement objected. The waterfront property owners argued that the building of the dock represented an expansion of of littoral rights beyond what was originally intended by the easement. The New York State Supreme Court disagreed, ruling in favor of the plaintiffs (landlocked owners), and that ruling was upheld by the appellate courts. Even though the easement granted to those landlocked lots did not expressly state that the right to build a boat dock was contained therein, the courts agreed with the defendants that the building and maintenance of a boat dock was a reasonable expression of their littoral rights. Other court cases have reaffirmed the position that easements providing access to navigable water include the right of wharfing out, and that the construction of a dock at the end of an easement is a reasonable and expected application of the easement. Some courts have reasoned that to not allow the building of a dock or pier would render such an easement "without purpose." The sum result of these rulings suggest that owners of landlocked property can exert their full littoral or riparian rights if that property contains an easement to the shoreline. Under the right circumstances, water rights, including the right to build a dock or pier, are not restricted only to those owning waterfront property.

Fixtures: Our Friend the Ceiling Fan Remember that ceiling fan we talked about earlier?

While still in the box, it was personal (and movable) property. Once (permanently) attached to the ceiling, it became real property...and part of the home (which itself is an improvement attached to the land). That installed ceiling fan is a prime example of a fixture. Most fixtures (personal property converted to real property) are created in a similar fashion and for similar reasons.

Supporting rights

While the rule of capture seems to say that all is fair in love and war — as well as the mineral rights game — there are some protections in place. Supporting rights is the legal concept of responsibility adjacent landowners share. Land is supported by the land that surrounds it. So, landowners shouldn't do anything that undermines that support.

real estate

a part of the surface of land to the center of the earth and upward to space, plus all improvements made by man or nature.

Personal Property

any unattached, movable asset on the property not considered real estate (land plus improvements); also known as chattel or personalty. (possessions such as jewelry, furniture, and boats)

Surface Rights

are the property owner's rights and interests with respect to the surface of the earth, including natural elements and structures built on or attached to it (improvements). This is the type of real estate ownership that the public understands the best. When driving down a street, it is easy to see homes that are built on the surface. Surface rights also include the right to build improvements on the surface that will enhance the value of the real estate.

Severance: Converting Real Property into Personal Property

is the act of converting real property into personal property. You could say, then, that severance is the opposite of affixation. For example, if, before selling a home, the owner decides to remove the family heirloom chandelier from the dining room, they would be severing the fixture from the real property and converting it into personal property. (They'd better clear this ahead of time with all parties to the sales transaction.)

Real Property

land from the surface to the center of earth and upward into space, including everything attached by man or nature as well as the bundle of legal rights of ownership.

Air rights

limited to the area directly over buildings only owned by the Federal Aviation Agency (FAA) limited to the area directly over the property only urban areas have air rights

Bundle of Rights

ownership of land with all of the legal rights of possession, control, enjoyment, exclusion, and disposition.

Subsurface Rights

ownership rights to all that is found beneath the surface of the tract of land owned, extending downward to the center of the earth

Improvements = Man-Made Attachments Attachments

physical objects permanently attached to land — can be man-made or natural. If man-made, they are usually referred to as improvements. Once affixed to the land, the improvement is considered part of the real property. Examples of improvements: Housing Landscaping Permanent BBQ pit Horse stables

Littoral Rights

rights of a landowner adjacent to a lake Remember "L" - Littoral/Lake rights that govern lakefront or oceanfront property and usually allow the property owner to use the water bordering their property.

Reliction

the exposure of previously submerged land due to receding waters.

Erosion

the gradual loss of land over time.

Trespass

the physical invasion of land by an individual without lawful right to do so

Alluvion

the soil that gets deposited in the process of accretion.

Avulsion

the sudden loss of land by an act of nature.

Riparian rights govern

the use of flowing water, such as rivers and streams that pass through or border a property. In accordance with riparian rights, a property owner does NOT own the water, but they may use the water and share those same rights and uses with other property owners whose land also interacts with the water.

Subsurface rights relate

to everything beneath the surface of a tract of land, down to the center of the earth. The importance of this right lies largely in the fact that it may secure ownership of mineral deposits located under the surface of a property. For this reason, subsurface rights are also commonly referred to as mineral rights.