Unit 1: Real Property & The Law

The most commonly disputed items between buyers and sellers

1. Draperies 2. light fixtures 3. appliances

What are the bodies of law that are important to real estate transactions?

1. Federal regulations, such as environmental laws 2. Federal Law 3. State Law 4. Local TAX LAWS

The specific areas of law that are important to the real estate licensee include

1. Law of contracts 2. General property law 3. The law of agency 4. state-specific real estate license law

In determining intent, courts use the following three basic tests:

1. Method of annexation 2. Adaptation to Real Estate 3. Agreement

Appurtenance

A right, privilege, or improvement belonging to, and passing with, the land.

What is land?

Earths surface to the center of the earth and airspace above the land including the trees and the water.

Emblements

Growing crops, such as grapes and corn, which are produced annually through labor and industry; also called fructus industriales.

Agreement

Have the parties agreed to treat an item as though it is real or personal property?

Method of annexation

How permanent is the method of attachment? Can the item be removed without causing damage to the surrounding property?

Manufactured housing

Is initially registered as a motor vehicle, and is considered generally as personal property, but can be converted to real property

Adaptation to Real Estate

Is the item being used as real property or personal property? For example, a refrigerator is usually considered personal property. However, if a refrigerator has been adapted to match the kitchen cabinetry, it becomes a fixture.

What is real estate?

It is land plus permanent human-made additions.

What is Real Property?

It is real estate plus "bundle of legal rights"

Trade Fixture

Item of personal property attached to real estate that is owned by the tenant and is used for business; legally removable by tenant.

Personal Property

Items, called chattels, that do not fit into the definition of real property; movable objects.

What is Real Property?

Land and anything permanently attached to it.

Physical Characteristics of Real Estate

Land has three physical characteristics: 1. Immobility 2. Indestructibility 3. Uniqueness

Indestructibility

Land is also indestructible. This permanence of land, coupled with the long-term nature of improvements, tends to stabilize investments in real property. The fact that land is indestructible does not, however, change the fact that improvements depreciate and can become obsolete, which may dramatically reduce the land's value. This gradual depreciation should not be confused with the fact that the economic desirability of a given location can change.

Summary of Unit 1

Land is the earth's surface, the mineral deposits under the surface, and the air above it. Real estate further expands this definition to include all natural and man-made improvements attached to the land. Real property describes real estate plus the bundle of legal rights associated with its ownership. Different parties may own different rights to the same parcel of real estate: one owning the surface rights, one owning the air rights, and another owning the subsurface rights. All property that does not fit the definition of real property is classified as personal property or chattels. When articles of personal property are affixed to land, they may become fixtures and as such are considered a part of the real estate. However, personal property attached to real estate by a tenant for business purposes is classified as a trade, or chattel, fixture and remains personal property. The special nature of land is apparent in both its economic and its physical characteristics. The economic characteristics consist of scarcity, improvements, permanence of investment, and area preferences. Physically, land is immobile, indestructible, and unique. Even the simplest real estate transactions reflect a complex body of laws. Laws that affect real estate include contracts, property, agency, state and local land-use and zoning laws, and federal and state environmental regulations and tax law. Every U.S. state and Canadian province has some type of real estate licensing requirement. Students should become familiar with the licensing law in Pennsylvania.

Scarcity

Land isn't generally considered a rare commodity, but only about a quarter of the earth's surface is dry land; the rest is water. The total supply of land is not limitless. Even though a considerable amount of land remains unused or uninhabited, the availability of land in a given location or of a particular quality is limited.

Characteristics of real estate

Real estate possesses seven basic characteristics that define its nature and affect its use. These characteristics fall into two general categories: economic and physical.

Real Property versus Personal Property

Real property is conveyed by deed, while personal property is conveyed by a bill of sale or receipt. Personal property is moveable and not a perennial crop

Permanence of investment

The capital and labor used to build the improvement represent a large fixed investment. Although even a well-built structure can be razed to make way for a newer building, improvements such as drainage, electricity, water, and sewerage remain. The return on such investments tends to be long-term and relatively stable.

Four Economic Characteristics of Real Estate

The four economic characteristics of land that affect its value as a product in the marketplace are: 1. Scarcity 2. Improvements 3. Permanence of investment 4. location or area preference.

Annexation

The process of converting personal property into real property.

Mine Subsidence

The process of downward land shifts due to the collapse of underground mine shafts and groundwater flows, usually resulting in sinkholes and troughs. The damage to structures may be functional, cosmetic, or structural.

The overall test used to determine whether an item is a fixture (real property) or personal property

The question of INTENT

What are AIR RIGHTS?

The right to use the open space above a property, generally allowing the surface to be used for another purpose. Air rights can be an important part of real estate, particularly in cases where air rights must be purchased to construct large office buildingsTo construct such a building, the developer must purchase not only the air rights but also numerous small portions of the land's surface for the building's foundation supports

What is the difference between real and personal property?

blah

Examples of Trade Fixtures

bowling alleys, store shelves, and barroom and restaurant equipment

Chattel

...

Whar are water rights?

...

What defines Personal Property?

...

Immobility

Although some of the substances of land are removable and topography can be changed, the geographic location of any given parcel of land can never be changed. Its location is fixed—immobile.

What is an improvement?

Any artificial thing attached to land.

What is property?

Anything that can be owned.

What is Subsurface Rights?

Are the rights to use the surface of the earth. An owner may transfer surface rights without transferring the subsurface rights.

Location or area preference

Area preference or situs ("to place") refers not only to geography but also to people's preference for a specific area. Area preference is based on several factors, such as convenience, reputation, and history. It is the unique quality of these preferences that results in the different price points for similar properties. Location is often considered the single most important economic characteristic of land.

Improvements

Building an improvement on one parcel of land can affect the land's value as well as the use of neighboring tracts and whole communities. For example, improving a parcel of real estate by building a shopping center or selecting a site for a nuclear power plant or toxic waste dump can dramatically change the value of land in a large area.

Severance

Changing an item of real estate to personal property by detaching it from the land; for example, cutting down a tree.

What are the Bundle of Legal Rights?

Ownership rights of real property which includes: 1. Right of possession, 2. Right to control the property within the framework of the law, 3. Right of exclusion (to keep others from entering or using the property), and 4. Right of disposition (to sell, will, transfer, or otherwise dispose of or encumber the property). 5. Right to Enjoy the property.

Fixture

Personal property attached to real property with the intention of becoming permanently a part thereof

What is the key to success?

Thorough product knowledge.

Uniqueness

Uniqueness, or nonhomogeneity, is the concept that no two parcels of property are exactly the same or in the same location. The characteristics of each property, no matter how small, differ from those of every other. An individual parcel has no substitute because each is unique.