Mobile Tech & Real Estate Definitions

Chapter 1: Mobile Tech & Real Estate Definitions

F. REAL ESTATE

As established earlier, real estate appraisal aims to estimate a defined value for a specific interest in a property at a given time. The concept of property is fundamental to this process. Property, in general, encompasses anything that can be owned. Appraisers assess the value of various types of property, including land, buildings, businesses, artwork, and antiques. However, this section focuses specifically on the appraisal of real estate.

1. Definitions of Real Estate

In appraisal practice, “real estate” has a precise meaning. The Uniform Standards of Professional Appraisal Practice (USPAP) defines REAL ESTATE as “an identified parcel or tract of land, including improvements, if any.” For appraisal purposes, a land parcel is identified by its formal legal description, which accurately defines its boundaries. (Legal descriptions are covered in detail in Chapter 4.)

Theoretically, a land parcel can be visualized as an inverted pyramid, with its apex at the Earth’s center and its sides extending outward through the surface boundaries of the parcel into space. Therefore, OWNERSHIP OF LAND encompasses ownership of the subsurface below and the airspace above, in addition to the land’s surface. Natural elements found on or within the land, such as minerals, vegetation, and water bodies, are often considered part of the land itself.

The second component of real estate, in addition to land, is improvements. An IMPROVEMENT is something that is permanently added to the land by human effort such as utilities, buildings, or landscaping. It is something that was not originally part of the real estate, but has become so by virtue of being attached to the land or closely associated with it in some way. Improvements are often referred to as fixtures, because they are usually affixed to the land (or to other fixtures on the land such as buildings) in a relatively permanent❓ fashion.

A FIXTURE is an item, which was formerly personal property, that has become real property after it is attached to the land or building in a permanent manner.

Test to Determine if an Item is a Fixture:
* Method of attachment (How easily removable or permanently attached?)
* Adaptability (Is the item attached by plumbing or plaster or just plugged in?)
* Relationship of the parties (A landlord’s purchase doesn’t leave with the tenant.)
* Intention (Personal property should not be permanently attached.)
* Agreement (Any item can be personal property if agreed to in writing.)
MARIA represents the first letter of each numbered sentence.

Example: A stack of lumber in a garage is not an improvement. However, lumber used in a fence on the property becomes an improvement or fixture, becoming part of the real estate.

V. Distinguishing Real Estate from Personal Property

Real estate, or real property, is differentiated from PERSONAL PROPERTY, which is tangible property not classified as real estate.

In most real estate appraisals, the value of personal property is excluded from the estimated real estate value. Thus, appraisers must distinguish between items that are part of the real estate and those that are personal property. While most items fall clearly into one category, the distinction can sometimes be challenging.

A. METHOD OF ATTACHMENT

Legal tests for determining whether an item is real estate or personal property may vary slightly between states, but they generally address the same basic issues. A key consideration is the item’s method of attachment to the real estate. Movable items are generally considered personal property, while immovable items are usually classified as real estate.

The more difficult it is to remove an item from the land, the more likely it is to be considered real estate, and vice versa.

Example: A manufactured home mounted on wheels with temporary utility hookups is likely considered personal property. However, if the same home is attached to a permanent foundation, it would likely be considered part of the real estate.

B. ADAPTABILITY

Another consideration in distinguishing real estate from personal property is the item’s adaptability to the real estate. Items specifically designed to function as part of the real estate are more likely to be considered part of it.

Example: House keys are generally considered part of the real estate because their function is closely tied to the specific property, even though they are not physically attached.

C. RELATIONSHIP OF THE PARTIES

The relationship of the parties involved and who installed the fixture can determine ownership.

For example, if a lender repossessed a property and installed an air conditioner, courts would likely determine the lender’s purpose was to repair the property and include it in the sale.

D. INTENTION OF THE INTERESTED PARTIES

The third major factor in classifying items is the intention of the interested parties. In a house sale, the buyer and seller may agree that an antique light fixture is not part of the real estate and will be removed by the seller.

E. AGREEMENT OF THE PARTIES

Ownership of fixtures can be determined by express agreement (as in the light fixture example) or by surrounding circumstances. Tenants often install fixtures with the intention of removing them at the end of the lease. Without any agreement to the contrary, tenant-installed items are usually considered the tenant’s personal property, even if attached.

Intention is the most important test of a fixture when the question is “Does it belong to the buyer or the seller?” For lenders and borrowers, the crucial question is whether the item is part of the real estate covered by law.

If not specifically covered in the loan agreement, a court may determine that some items are personal property, even if the lender assumed otherwise.

Appraisers have sometimes included property in appraisals that was later determined to be personal property, leading to the borrower removing the property and leaving inadequate security for the lender.

Consider an appraiser assessing land with a manufactured home. Including the manufactured home’s value could leave the lender with little security if the home is later deemed not to qualify as real property. State law governs the classification of manufactured homes. Generally, they must be on permanent foundations and subject to real estate taxation to be considered real property.

An appraiser should protect lenders and buyers by identifying any ambiguous areas regarding property classification, ensuring that the loan agreement or purchase contract specifies whether items are considered personal or real property.

F. TRADE FIXTURES

Fixtures installed by a tenant for business operations on leased property are known as TRADE FIXTURES. These fixtures typically remain the tenant’s personal property (unless otherwise agreed) and can be removed upon lease expiration. However, the tenant is responsible for repairing any damage to the real estate caused by removing the items.