What is real estate?

When you use the word real estate, people think of different things. Some think of land, others think of homes or even condominiums. Everyone would be correct, since real estate is essentially land and the building affixed to it. From legal perspective, this is actually known as real property, and it includes even more than the land and buildings attached to it.

Real property includes land, any fixtures or improvements attached to the land, as well as rights and privileges associated with the land. The interests and rights associated with the ownership of land can be defined as the bundle of rights. The bundle of rights includes the ability to mortgage, lease, will, subdivide and sell. The bundle of rights is complex, particularly because rights can be broken up into parts where a person may not get all of the rights of ownership during a transfer. An example is a person who bought the real property but does not have subsurface rights (that is, rights to mineral, oil and gas below the land’s surface).

Land is one of the basic components of real property. It is not just the surface of the land and the boundaries within a parcel, but it also encompasses everything below and above the surface of the earth.

Real estate encompasses the land along with any fixtures. A fixture is anything permanently affixed to the land. Fixtures are man-made, permanent attachments to the land (e.g., buildings) or improvements that usually cannot be removed without an agreement (e.g., plumbing fixtures or store fixtures that are built into the property). When a property is sold, anything affixed to the land (e.g., buildings, fences) or rights to be used with the land (e.g., air rights, oil and gas rights) are known as appurtenances.

Appurtenances include the following rights:

Air Rights
Water Rights
Mineral, Oil, and Gas Rights
Surface and Support Rights

Air Rights, as we stated earlier, in theory, a landowner owns the airspace above the surface of the land. If this was the case literally, then air traffic 15 would not be able to fly over land that was not owned by the public. When Congress gave the federal government complete control over the national airspace, it left landowners with the right to use airspaces at the lower levels as long as it does not interfere with air traffic.

Water Rights Water rights apply to water found above or below the surface. The Department of Ecology controls water rights in Washington. The term for our state's water right is a prior appropriation right.

Surface waters fall into two categories:

Riparian rights
Appropriative rights

Riparian rights refer to water that flows through or adjacent to a property. The landowner, known as a riparian landowner, has a right to have reasonable use of the stream, creek, or river. Reasonable use includes water for domestic use (e.g., drinking water, bathing, irrigation for home gardening). If the waterway is large enough to be used by commerce, then it is considered a navigable waterway. If it is a navigable waterway, the government owns the land under the water and the riparian landowner owns the land to the mean high-water mark of the shore. If the waterway is non-navigable, then the riparian landowner owns the land under the water to the midpoint of the stream bed. Upstream landowners are not allowed to substantially diminish the flow of the waterway. The concept is to ensure the actions of one owner do not adversely impact other owner’s rights of reasonable use. Similarly, the legal doctrine of correlative rights limits a landowner’s use of a source of groundwater to a reasonable share based on the size of their property. Correlative rights are applied to overlying rights, which is water rights that attach to the property and allow an owner a reasonable share of the groundwater. Overlying rights is applied in California, but not in Washington. Slightly different rights are given to property beside a lake or ocean, known as littoral rights. Littoral landowners are entitled to use the water for recreational purposes, have the lake maintained at its natural level, and have the natural water purity of the lake maintained. If the lake is non-navigable, then each littoral owner owns a portion of the lakebed that is adjacent to their property. Riparian or littoral owners are not allowed to use the water from the lake or flowing waterway for land that is not adjacent to the water.

In Washington State, the riparian and littoral rights system was replaced by the appropriative rights system. All riparian and littoral landowners were required to register their water rights with the Department of Ecology by June 30, 1974. The appropriative rights system has one major difference over the older riparian or littoral water rights system. The older system was tied to land ownership, whereas the appropriative rights system is not dependent on land ownership. Rather, it is based on a permit system. If someone wants to use the water from a lake or stream, they must apply with the Department of Ecology. This rights system is known as the Doctrine of Prior Appropriation in the United States.

Landowners also have overlying rights to the groundwater in aquifers beneath their property. Accretion Water as well as weather and other natural events can affect the contour and usability of property. Accretion is when property is added or increased through natural or manmade action. It can happen either rapidly or slowly. There are three concepts to note regarding the loss and/or gain of land, accretion, reliction, and avulsion. When a flood occurs or a river rapidly changes course, land can be separated and therefore increase or decrease its usefulness and even size, known as avulsion. Reliction, is when the water line changes gradually, such as a lake receding and giving the property owner more dry land. If property is gradually eroded or changed over time due to weather or even river changes, it is known as accretion. Accretion is often caused by erosion, the process of water or wind removing rock or soil from a property. The biggest difference between reliction and accretion with avulsion is the time frame over which the changes occur. Avulsion is rapid while reliction and accretion is gradual. If property is displaced through avulsion, it is still legally the property of the original title holder (owner). However, recovering and/or identifying lost land can be extremely difficult and potentially costly. Over time, it will become part of the property it now rests on.

Mineral, Oil, and Gas Rights In our prior discussion of land, land encompasses the ground beneath the surface. In theory, a landowner owns the ground, which reaches to the core of the earth. These subsurface rights might include water rights and MOG (mineral, oil and gas) rights. A landowner may sell their MOG rights while still maintaining ownership of their property. There is a differentiation between a right to profit from minerals, oil and gas rights and an easement. An easement confers the right to use, where profit confers the right to remove and sell. A profit can also be had when removing anything the soil produces. Surface and Support Rights Lateral support rights is the support from adjacent properties and subjacent support rights is the support from the underlying earth. Land ownership encompasses both of these rights. For example, a neighbor's excavation cannot erode the foundation of a property and cause it to sink. Further, a neighbor cannot tear down a common wall that supports the building.

Uses of Real Property Real property is used in many ways.

Within the residential category, we commonly refer to this as housing. Housing includes single family dwellings, condominiums, multi-family dwellings, dormitories, barracks, manufactured, and modular homes.

Properties used for business make up the commercial category. Examples include hospitals, malls, high-rise buildings for office space, and restaurants. While they are still businesses, the category for agricultural is more specific and comprises ranches, orchards, vineyards, and farms.

Another more specific commercial category is industrial, used for production including warehouses and factories.

Finally, there is recreational property which can be privately or publicly owned such as parks, beaches, campgrounds, and hiking trails. Personal Property Personal property consists of everything else that is not real property. Synonyms for personal property include chattel, personalty or movable.

There are legal tests that determine whether an item is real property or personal property. As a basic concept, a movable object is considered personal property while an immovable object is real property.

Besides land and appurtenances, there are also attachments which fall into two types:

natural and
man-made.

Natural attachments are trees, shrubs, native growth and plantings. They are considered real property in most cases. If we take an example of a peach orchard, the trees could be considered a natural attachment; thus, they are real property. There is a special case in regard to crops, where the peach trees would be considered a natural attachment, but the peaches themselves would be considered personal property. The term to refer to crops which are considered personal property is emblements, which would remain the personal property of the tenant in farming arrangement. Even if an owner terminates the lease the tenant remains with rights to the crops they planted since they are personal property. Emblements is a concept that originated a long time ago in Roman law and used to be known as fructus naturales, meaning the natural fruits of the land which included agricultural planting and wild game. In the case of fructus naturales, it’s the natural growth on the property and wild game and is considered real property.

Man-made attachments are known as fixtures, as discussed previously, which are attached to the land by people. Unlike personal property, fixtures are immovable. Examples of attachments include houses, fences, outbuildings, cement walkways and permanent carports. Fixtures can start out as personal property. The roofing shingles used to cover the roof started out as personal property and then became real property once they were attached to the structure. Sometimes it is difficult to determine whether an item is personal property or real property. If the item is personal property, then the owner can remove it when the property is sold. If it is real property, then the owners cannot remove the item when the property is sold, unless otherwise agreed upon by the parties involved. Real property is affixed to the land and would damage its value if it were removed.

Items that are installed by a tenant to enable them to carry on a trade or a business are called trade fixtures. Trade fixtures may be removed by the tenant unless the tenant and the owner agree otherwise. If the tenant removes the fixture, it is the responsibility of the tenant to restore the property to its original condition. Let’s look at an example of trade fixtures. Example: A tenant leased a commercial space for a dance studio. The tenant purchased and installed mirrors on all the walls in the practice room. The mirrors are legally classified as trade fixtures, because they are the personal property of the tenant installed for use in a business. The tenant may install the mirrors with the permission of the landlord. Unless stipulated otherwise in the lease agreement, the mirrors would become the property of the landlord if not removed before the expiration of the lease.

Differences Between Fixtures and Personal Property

Because it can be difficult to distinguish between real property and personal property, buyers and sellers can disagree on what should be included and what should not be included in a sale. Any items that could possibly be in question should be addressed in the purchase and sale agreement as either included or excluded in the sale. A purchase and sale agreement is the contract buyers and sellers use to come to terms regarding the transfer of real estate. This will eliminate confusion or disagreement between the seller and the purchaser, thus reducing your risk as a broker.

The following two examples will help illustrate this point.

Example 1: The Swanson’s received a crystal chandelier from their parents for their tenth wedding anniversary. The chandelier was personal property, but now that it is attached to the ceiling of their dining room, it is real property. The Swanson’s are planning on selling their home and want to take the chandelier with them. What are the Swanson’s options?

They could remove the chandelier from the ceiling and replace it with another lighting fixture prior to listing their home for sale.
They could leave the chandelier in place, put a tag on it stating: “excluded from sale” AND state in the purchase and sale agreement that the chandelier be excluded from the sale.

Example 2: The buyers of the Johnson's’ home have written into the purchase and sale agreement that they would like the painting that hangs over the fireplace included with the sale of the property. The Johnsons are in agreement with this. What should sellers do? They should leave the painting with the home and supply the purchaser with a bill of sale for the personal property.

A bill of sale is a document used to transfer ownership of private property from one party to another. This is different than real property, which is transferred using a purchase and sale agreement.

Legal Tests of a Fixture

When an item is in dispute as to whether it is personal or real property and there is no written agreement between the parties, the courts will use a series of tests to determine the classification of an item. These include:

Method of attachment
Adaptation to the environment
Relationship of the parties
Intention of the person who installed the item (intent of the annexor)
Agreement between the parties

The tests of a fixture can be remembered as the acronym: MARIA.

Usually when an item is permanently attached to the land, it becomes real property. Examples of a permanent attachment include items that are:

Attached to the land by a foundation (e.g., certain types of buildings)
Attached to the land by roots (e.g., trees or plants)
Embedded in the earth (e.g., an underground oil tank)
Attached by other permanent methods (e.g., bolts, screws, concrete or nails).

If an unattached item was designed for a specific purpose on a property, it may be a fixture. Examples of this include row seats in a movie theater or storm windows that were designed for a particular home.

Are the parties’ buyer/seller or tenant/landlord? If the tenant installed a window air conditioner, he/she may have planned to take the unit with them--suggesting it is personal property. However, if an owner installed the same unit with an intention of a improving the property, then it might be considered a fixture.

The courts would ask if the person who installed the item intended it to permanently stay or be removed. Often referred to as the intent of the annexor, meaning the intent of the person who attached the property. This is often the primary determining factor for deciding if property is tangible personal property or a permanent fixture. This can cause legal difficulty since it is a subjective yet determining factor in classifying property.

Conclusion

Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general. In terms of law, real is in relation to land property and is different from personal property while estate means the "interest" a person has in that land property.