Nature and Description of Real Estate

If you’re in the real estate business, you probably get that it centers around ownership, possession and the transfer of real estate. So now, this circles around personal property, real property, land, etc..

The thing is though, real estate is more than the earth you walk on.. As an owner of real estate, you’re now involved with a complex set of laws that define your rights and interests. But not just owners, these laws define the rights of third parties and even the general public as well.

So, we know that governments are directly involved with laws. Which means that governments on all levels and the courts affect real estate.

Let’s dive in this..

Property Rights

Property is more than the house or land you own. It also refers to the rights and interests involved with its ownership and use. Yea, these are usually referred to as the bundle of legal rights. So, when you buy real estate, you’re also getting the rights associated with being the owner. These rights were owned by the seller.

I mean let’s see what these rights include:

• Possession,
• control within the law,
• enjoyment within the law,
• exclusion (keeping folks from entering and occupying the property)
• disposition (the right to sell and transfer the property).

But your bundle of rights are not absolute. You can sell, lease, give away, trade, or even exchange your rights. I mean, you can even lose certain rights by someone else, not paying taxes, or even not paying debts.

Owning property is not a general thing. It’s is actually classified into two types: real and personal. Real property is immovable. Personal property is movable.

Land, Real Estate, and Real Property

You’ll find the words land, real estate, and real property use in place for each other often. Even though, it seems to describe the same thing, there are differences that you should be aware of. But before we dive in, if you need a quick refresher on the real estate business click here: An Intro to the Real Estate Business..

https://yourbanpulse.com/an-intro-to-the-real-estate-business/

Land

When you think of land, you’re usually thinking of the physical earth. But that’s thing, it’s actually more than just that. It is the physical earth, yes, but this means everything extending downward toward the center of the earth and upward to infinity. That’s all yours. But we’re not done though. That also includes things that are permanently attached by nature like trees and water even things called appurtenance. Anything that runs with the land and is used by the land for its benefit is an appurtenance.

So, that even includes subsurface rights, air rights, and water rights. Let’s break those down.

Subsurface (Mineral) Rights

Subsurface rights gives you, as the owner, the right to everything below the surface of the earth. This is all depending on the state and local law though. So, remember those rights that you got when you bought the land? Yea, so those also give you the right to transfer, give away or even sell your subsurface rights as well. I mean, let’s use an example.

Say you own land in Texas, and you may be sitting on oil reserves. You can sell the rights to any oil and gas found in your land to an oil company. Even more interesting is, you can sell the land, but can agree to the rights of all the coal found in the land. So now, there are three parties with ownership interests: (1) the oil company owns all the oil and gas, (2) the seller owns all the coal, and (3) the purchaser owns the rights to all the rest of the real property.

Air Rights

Air rights literally means you have rights to use the air above the land. Being that you own it, means that you can even sell it independent of the land itself. That means another way you can be creative as a landowner. We can see how in a large city, where land and space is at a premium, air right’s value. Check this article out from the American Planning Association about air rights for more examples: Air Rights Examples.

In New York City, for example, the Met Life building is built over railroad tracks. So, the developer had to acquire the air rights above the tracks and even small pieces of the surface of the land to build the building’s foundation supports.

A property owner’s air rights were considered unlimited until planes came onto the scene. So today, the courts allow interference with these rights, as long as it was reasonable. Which meant that the planes could not lessen the owner’s right to use and occupy the property. Think about it, a plane flying over unused airspace doesn’t interfere with the owner’s ability to occupy the property.

Water Rights

Everyone needs water and somewhere to stay. But what happens when multiple owners share a coastline to a body of water? Well the owner’s rights, with a situation like this, are highlighted in the riparian rights, littoral rights, or prior appropriation. Navigable waters are treated like public highways. This means the general public have the right to travel on them. Which means you as a landowner, own land up to the edge. That leaves the submerged land in the government’s hands.

If you’re an owner of land along the course of a flowing water, like a river, you have riparian rights.If you own land and have water located within the subsurface of your land, you have riparian rights. Your riparian rights are usually governed by state laws. So, if you’re an owner and are in a situation like this, you got some options available. You’re allowed to use the water for irrigation, swimming, boating, fishing, or anything legal. Just don’t interfere with the other owner’s rights!

Now if you’re an owner, who’s land borders large, navigable, nonflowing lakes or oceans, well you got littoral rights. It’s the same concept as the riparian rights, just got to make reasonable use of the waters.

If you’re a landowner, but in an area where waters are scarce then you’re subject to prior appropriation. You can only use the water for mostly domestic use. This is all being controlled by the state.

Real Estate

Now when you own real estate, you own the earth’s surface extending downward to the center of the earth and upward into space. This includes all things attached to it as well. Products that grow naturally and require no annual labor or cultivation, like trees and bushes, are real property. Products require you to manually plant and cultivate are personal property.

If you want to build a structure on the land, then that structure is a considered an improvement. I mean don’t get fooled by the word improvement. It doesn’t necessarily mean it has been made better even if it has been improved.

Real Property

Now if you want to tie, all the physical aspects of real estate and all your rights and interests associated, then call it real property. That’s all that this means. It’s just a combination of all things discussed before.

Characteristics of Real Estate

There are characteristics that affect your real estate, both directly and indirectly. I would some these into physical and economic characteristics.

Let’s dive in..

Physical Characteristics

What’s the first thing when you think of land? Yea, it’s more obvious than you think. But basically you can’t move land, destroy land, and no two are alike.

Immobility

It’s simple. Land is immobile. Yes, there are portions that can be removed or even it’s topography can be changed. But that portion of the earth’s surface is always there. Going even further, the geographic location of any parcel can never be changed. It is rigid and fixed.

That lack of mobility actually makes it easier to regulate the rights associated with the land. Your land records are located in the city or county where your land is located. Matter fact, your local government relies heavily on property taxes. So land won’t just get up and leave, which gives a constant revenue source. Now long term plans are always an option because of this.

Indestructibility

When you think indestructible, you think durable as hell. Well, your real property is just that. Now this is the case for the improvements as well. The only thing is, your improvements do still depreciate over time. Next up.

Nonhomogeneity

Your parcel may look like your neighbor’s, but its not alike. As a matter of fact, no two parcels are ever the same. Just the different geographical location makes them different. Now as a result of this, courts can’t require you to accept a substitute. Because you’re not getting a substitute. That’s pretty interesting.

Now let’s jump to some economic characteristics.

Economic Characteristics

Hey, economics always affect all of us. The basic factors for land are relative scarcity, improvements, permanence of investment and area preferences.

Relative Scarcity

There’s plenty of land in this country. The United States to be exact. But Most countries have a lot of land, so can it be scarce? The preferences of people and jobs, do make it scarce. For example, New York State is full of land. Actually it’s one of the largest states in the country. Yet, everyone seems to be mostly around New York City. Think about it.

Improvements

If you have land and want to develop an apartment complex, It does affect everything around you. It can be either good or bad. Now if you want to build a concrete plant in a residential community. Yea, that’s going to have a dramatic impact on those house values. Those are also pending health effects as well. It’s sort of a reason why the government has gotten involved through zoning.

Permanence of Investment

Once you improve land, capital and labor expenses represent a fixed investment. Think about it, when you improve the land by adding drainage, electricity, water, and sewage those are usually fixed. You improvements are fixed. You’ll get your money back over a longer term, but it’s relatively stable.

Area Preferences

People always have choices and preferences. You’ll always have one as a person. Your choice as a person as well as a bunch of others affect demand. With demand comes different values. As an investor or developer, you always got to keep up cause preferences are always changing. It’s NEVER static. For example, the baby boomers moved out to the suburbs. But you’re seeing a dramatic shift back into the cities. Why? Well why not!? You have access to way more variety and amenities.

Land Unit Measurements

Alright, so we’re about to go into the legal descriptions of real property, but we got to understand the land unit measurements that are commonly used.

They are:

• Mile = 5,280 feet or 1,760 yards
• Square Mile = 640 acres (5,280 feet x 5,280 feet = 27,878,400 square feet / 43,560 square feet per acre)
• Acre = 43, 560 square feet
• Cubic Yard = 27 cubic feet
• Square Yard = 9 square feet
• Square Foot = 144 square inches

Legal Descriptions

When you’re transferring title of real property or even preparing an instrument to be recorded, you actually need a legally sufficient description of the real property to do this. Now what is that you’re probably wondering? Well, it’s actually pretty simple. The legal description of your property describes no other property, but yours. It will characterize your property in a way that a surveyor could locate it, with nothing more than the description. So, you’re description could either be formal or informal.

So, if you’re description is informal, your parcel can be located, but it just won’t be accepted by the courts. Title companies won’t even insure your parcel if the description is informal. So, if your description uses street numbers, or a building name it’s informal. What I mean by street numbers is like this: 1131 Texas Blvd, Brooklyn, NY. The Willis tower, is another example of informal. I mean we can surely locate it, but the courts don’t accept it.

So formal descriptions have like three basic types: metes and bounds, rectangular survey, and subdivision lot and block (plat). Metes and bounds is the oldest one. Metes represents your distance and direction. Bounds represents your landmarks and monuments.

Metes and Bounds

So, this description start at a designated starting point known as the point of beginning. Then, they proceed around the boundaries of the tract using references. These references are linear measurements and directions, then make it back to the point of beginning. The boundary has got to be closed, so it always goes back to the beginning.

Now, metes-and-bounds descriptions are not easy and have to be handled with extreme car. These descriptions tend to be lengthy. They usually have gaps and overlaps can come from different descriptions used before. So as a result, you need to have your land surveyed by an authorized surveyor to get a clear boundary. Also, a possible problem is when a point of reference (monument) gets removed. You got to remember that a monument, can be a tree or a rock. So if its moved, then you lost a point of reference.

Monuments

To be clear, monuments are fixed objects used to establish boundaries. So a monument, can be natural or even artificial. When we say artificial, that includes roads, fences, canals, and iron pins or posts. natural monuments are rocks, trees, lakes, and streams.

Benchmarks

Benchmarks are just permanent reference points used in land descriptions. So in a metes-bounds-description, the point of beginning is usually a certain distance from the benchmark. These benchmarks are important because it represents a point of a known elevation. So, from that reference you can your needed elevation.

Rectangular Survey

Now this system has its origins from way back in 1785, soon after the federal government was established. So they wanted a standard method of describing all land that was transferred to them or just acquired.

So, the basics of this system is being based on two sets of intersecting lines: principal meridians and base lines. Principal meridians are north and south lines, while base lines run east and west. Each principal meridian has a name or a number and is crossed by it’s own base line. Each principal meridian and base line is used to survey a specific area of land.

Ranges

The land on either side of a principal meridian is divided into six-mile-wide strips by lines that run north and south. These lines are parallel to the meridian. These north-south strips of land are ranges.

Townships

Lines running east and west and parallel to the base line six miles apart are called township lines. This also forms strips of land which are called townships. So these townships are designated by consecutive numbers north or south of the base line.

Sections

Each township contains 36 sections. Sections are numbered consecutively, 1 through 36, but it starts in the top right hand corner of the township. Also by law, each section numbered 16 has been set aside for school purposes. It’s called a school section. Each section contains 1 square mile, or 640 acres of land. It is commonly divided into half-sections (containing 320 acres). quarter sections and further.

Subdivision Lot and Block

This the newest method of land description and its by subdivision lot and block in a subdivision plat. When subdividing land, the licensed surveyor or engineer first prepares a plat map. After referencing the official description of the larger property, then the land into blocks. Then after divided further into lots. So each block and lot are assigned a number or even a letter. So after going through all government checks, you’ll record it in the county and wait for approval.

Measuring Elevations

Air Lots. As an owner, you have the right to subdivide even your air above the land into air lots. So an air lot, consists of airspace within specific boundaries over your parcel of land. You’ll typically find these types of descriptions in titles to tall buildings over railroad tracks. Condos as well.

Datum. Similar to a benchmark, a datum is a point, line or surface from which elevations are measured or indicated. Most cities have an established local datum in relation to the U.S. Geological Survey. The most common datum used for a property is the surface of the land. Now this is important when dealing with air lots cause it gives it an exact location in the air. For example, a condo in a Manhattan high rise is on the 50th floor. So it might, be “Air Lot 43, located 120 feet above the surface of the land.” A datum is also important for subsurface items as well.

Personal Property

Personal property are also known as chattels. The main difference from real property is that its movable. So with that description, items like furniture, clothing, money, leases, flowers and crops are all personal property.

Fixtures

When you have personal property that gets attached to the real estate in a way that it becomes a part of the real property, it’s called a fixture. But that whole process is called accession. For example, wall-to-wall carpeting. When uninstalled its personal property, but when installed its immovable. The courts apply five tests to determine whether something has become a fixture or is still a personal property. (1) Method of attachment, (2) agreement between the parties, (3) relationship of the parties, (4) intention of the parties, and (5) adaptation of the item to the real property.

I can explain each briefly;

1. Method. Whether the manner of annexation or attachment is actually permanent in nature.
2. Agreement. This is normally the first test to be applied by the court, if there was an agreement between the parties involved. If there is an agreement, then all other tests are usually disregarded.
3. Relationship. Another test applied by the court. Its the relationship between the person who adds the attachment and the person who brings up the dispute.
4. Intention. The intention of the parties at the time the item was attached. This is very important in determining if it was a fixture.
5. Adaptation. How an item is adapted for use is another test.

Severance

So, you can convert a personal property into a fixture, but you can also convert real property into personal property through severance. For example, a growing tree is real property, but if you cut it, its now personal property. Likewise, if you have gold in the subsurface of the land its real property, but if you mine it its now personal property.

Trade Fixtures

Now if you’re conducting a business, you’ll need fixtures. But these are typically referred to as trade fixtures, which are used for conducting a business. Trade fixtures are considered personal property though. Some examples are, bowling alleys, restaurant equipment etc.. So on the last day of the lease, they have to be removed or they become real property of the landlord by accession. After the expiration date of the lease, the tenant literally has no right to come back and remove the trade fixtures.

Emblements

If you grow crops annually as a result of someone’s labor, they’re called emblements. They are personal property even before the harvest. Now this means the tenant farmer has the right to take the annual crop that came from the farmer’s labor. Even if the harvest happens after the lease expires. So a landlord can’t terminate a tenant farmer’s lease and not give the tenant the right to reenter the land to harvest the crops.

Closing

Real estate is definitely more than the land and it’s surface we see. The air above the land can serve even as a valuable asset when making real estate decisions. It’s important to understand these aspects of real estate, whether your just a homeowner or even just selling real estate. It’s important to be informed on the characteristics and even the rights that are available to you when own real property.

Thanks for reading!

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