Chapter 2 Nature and Description of Real Estate

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Chapter 2Nature and Description of Real Estate

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The Physical Dimension of Real Estate

• The concept of real estate contains two
  dimensions a physical dimension and a legal
  dimension.
• The Physical Dimension the physical dimension
  pertains to the tangible, physical real estate.
  Physically, real estate consists of land and all
  things permanently attached to the land.
• The physical real estate is desired because it
  provides land-based facilities and resources for
  conducting various forms of human activities and
  for meeting human needs, such as shelter and
  privacy.

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The Legal Dimension of Real Estate

• The Legal Dimension The legal attributes of
  real estate are not tangible things like the
  physical real estate (i.e., they are not
  something you can see, touch, or hear).
• Instead, the legal dimension involves the rights
  that persons have in the physical real estate.
  The legal dimension involves the property rights
  determining who can use, possess (occupy),
  control access to, control modifications made to,
  dispose of, and who can otherwise obtain benefits
  from the physical real estate (such as collect
  rents).

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The Legal Dimension of Real Estate (Continued)

• In its legal dimension, real estate becomes
  synonymous with the term real property. Real
  property consists of rights in the physical real
  estate.
• The law of real property determines the nature of
  the rights that can be held in real estate how
  those rights can be protected, transferred, and
  divided (apportioned) among different persons or
  entities, and it defines relationships among the
  various right holders in real estate.
• Property rights specify who can use, possess,
  control access to, modify, and dispose of the
  physical real estate.
• It is the rights to the physical real estate that
  people actually purchase and sell in real estate
  transactions.

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Real vs. Personal Property

• Property is divided into two broad types
  personal property and real property
• Personal and real property are distinguished on
  the basis of their movability.
• Real property refers to the land and to things
  attached to the land so as to be immovable (or
  movable only with great difficulty).
• Personal property, on the other hand, is movable
  property. It is property that can be transported
  by a person.

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Components of Real Property

• The question we now address is, What is included
  in real estate, or what does real estate include?
  
• Land Land provides the place on the surface of
  the earth where activities can be conducted. But
  raw land is rarely suitable for most human uses
  beyond hunting, gathering, and herding.
• Improvements Improvements are modifications or
  additions to the land that are intended to make
  the land suitable to some type of human use. It
  is by means of improvements that raw land becomes
  productive for most human purposes.
• Improvements take the form of buildings and other
  structures, streets, driveways, pipes and utility
  cables, sidewalks, drainage channels and
  culverts, parking lots, grading, terracing, etc.

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Components of Real Property (Continued)

• Appurtenances a thing or right that is
  considered to belong to the land and that is
  transferred with the land because it is
  considered necessary or incidental to its use or
  enjoyment. Examples of appurtenances are
  easements of ingress and egress, water rights,
  mineral rights, condominium parking stalls, and
  shares of stock in a mutual water company that
  provides water to a parcel of land.
• Fixture an item with the characteristics of
  personal property that has become attached to the
  the real estate (land or building) in a manner
  than makes it part of the real estate.

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Fixtures

• A fixture is an item that has the features of
  personal property but that has became attached to
  the real estate in such a way as to be considered
  a part of the real estate.
• The legal rule regarding fixtures is that, absent
  an agreement between the parties to the contrary
  (i.e., a stipulation in the contract of sale), an
  item that is deemed to be a fixture goes to the
  buyer in the sale of real property. That is, an
  item deemed to be a fixture belongs to the real
  estate and is transferred upon transfer of title
  to the new owner.

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Fixtures (Continued)

• Four tests determine whether the item was
  attached to the real estate with the intention of
  permanently improving the real estate.
• Manner of Attachment Is the item attached so as
  to be imbedded in the real estate?
• Adaptation of object Is the item particularly
  adapted to the real estate?
• The relationship of the parties the
  relationship of the parties with respect to the
  real estate also determines whether an item is a
  fixture. A trade fixture is an item installed in
  the property by a commercial or industrial
  tenant.
• Existence of an agreement The existence of a
  written agreement between the parties as to which
  items belong to the real estate and which are
  personal property is binding. The existence of
  an agreement is generally regarded to be the most
  important determining factor and will supersede
  the other tests.

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Plants, Trees, and Crops

• How are trees, bushes, crops, and other plants
  treated?
• Trees, bushes, and perennial plants (perennials)
  embedded in the soil that do not require annual
  cultivation are considered real property.
  However, trees and plants in pots are considered
  personal property.
• Annual crops, such as corn, tomatoes, cotton, and
  potatoes, are consider products of human labor,
  and therefore personal property, even though
  embedded in the soil. Annual cultivated crops
  are called emblements.

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Dimensions of Real Property

• A persons property rights in land includes
• the surface of the earth,
• the sky above the surface boundaries, and
• everything beneath the surface boundaries to the
  center of the earth.

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Mineral Rights

• Rights below the surface of the earth (subsurface
  rights) can be leased or purchased separately
  from the surface rights.
• In addition, mineral rights and oil and gas
  rights can be leased or sold separately.
• For example, the mineral rights can be leased or
  sold to person A, and the oil and gas rights can
  be leased or sold to person B.

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Mineral Rights (Continued)

• How is ownership of oil and gas beneath the
  surface of the earth determined?
• In this country, the prevailing legal rule is the
  rule of capture. The rule of capture holds that
  if a person drills straight below his own land,
  he will own all of the oil and gas produced, even
  though some of the oil and gas migrated to his
  well from his neighbor's land.
• But if he drills at an angle from his land to
  beneath his neighbor's land he is not entitled to
  the oil and gas he obtains. This is called
  crooked hole drilling, and it is a form of
  trespass.

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Air Rights

• Prior to the days of aviation, the courts had
  ruled that ownership of land extended up from the
  surface of the earth to the high heavens.
• But since the advent of aviation, the courts have
  restricted the upward extension of real property
  to that portion of the airspace that the
  landowner can reasonably expect to use. The
  upper airspace is considered part of the public
  domain, and thus cannot be owned by private
  individuals.
• In most of the larger urban areas it has become
  common for air rights above a parcel of land to
  be sold or leased separately. Can you think of
  examples of air rights? See the description on
  an air lot on page 27.

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Water Rights

• Riparian Right The right of reasonable use of
  surface water running through or adjacent to your
  land, such as a river or stream
• Littoral Right The right of reasonable use of a
  body of nonflowing water adjacent to your land,
  such as a lake or sea.
• Other water-related concepts (look these up)
• Doctrine of prior appropriation
• Doctrine, or rule, of capture
• Doctrine of reasonable use
• Percolating water
• Water table

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Property Description

• Street addresses and the Assessors Parcel Number
  (APN) are property identifiers, not property
  descriptions.
• An Assessors Parcel Number (APN) is a unique
  number assigned to every parcel of land in
  California. It functions similarly to a social
  security number for individuals.
• What defines a legal description of property? A
  legal description must describe, or delineate,
  the boundaries of the property.
• There are three principal methods of legally
  describing tracts of land in the U.S..
• 1. The rectangular (or government survey)
  system
• 2. Metes and bounds
• 3.  Recorded plat

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The Government Survey System

• The Government Survey System was developed by the
  Continental Congress in 1787 for the purposes of
  surveying the huge wilderness areas that were
  soon to be transferred from Great Britain to the
  new American government. It is the basis for
  describing large tracts of land in 30 states.
• The system proceeds by dividing an area (a
  territory) into successively smaller rectangles.
• Each state or territory has a principal, or
  prime, meridian that runs north and south,
  generally tracing a longitude line running north
  and south across the globe. The principal
  meridian intersects an east-west line called the
  base line, which traces a latitude line that
  circles the globe from east to west (See Figures
  on pp. 20-23).
• The principal meridian and the base line serve as
  the reference points for further surveying in the
  territory.

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Meridians and Base Lines of the Governmental
Survey System of the U.S.
19
Township Divided into Sections
The numbering begins in the NE corner
20
One Section (640 Acres) Subdivided
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Metes and Bounds

• With this method of property description, the
  property is described in terms of distances and
  directions of the boundary of the property. In
  other words, the perimeter of the property is
  traced using measures of distances (typically
  feet) and the directions of a compass.
• The original starting point may be a monument of
  some type or a point described by the rectangular
  system. In fact, it is common for descriptions
  using the metes and bounds method to have as
  their initial reference point (benchmark point) a
  point described by the rectangular system (see
  next slide).
• Surveyors generally proceed clockwise from the
  point of origin tracing the boundary of the
  property and ending back at the point of origin.

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Compass Directions Used ina Metes and Bounds
Survey
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Describing Land by Metes and Bounds
NE Corner of Section 32 T2N, R3E 6th Principal
Meridian
To find the direction of travel to the next
corner, set the center of a compass on the
previous corner of the parcel.
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Recorded Plat

• This method is now the most frequently used
  method of land description in urban areas.
• When large tracts of land are developed within
  urban areas, most jurisdictions require that a
  map of the development, referred to as a plat
  map, or simply "plat," be filed by the developer
  with the county clerk or recorder, or comparable
  local official.
• The filing of the plat map is generally part of
  the subdivision approval process.

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Recorded Plat (Continued)

• In a plat map, the acreage to be developed is
  assigned a subdivision name. The acreage is
  divided into individual lots.
• Each lot is given a unique number within the
  subdivision to be developed. Each street within
  the subdivision is given a name, if one does not
  already exist.
• The subdivision name and its individual lot
  number identify a lot. The name of the street to
  which the property is adjacent can also be used
  to locate the property.
• The boundaries and dimensions of each lot are
  drawn on plat maps.
• The plat maps are maintained by some unit of
  local government. The plat of the land
  containing the subject property is indexed by
  plat (map) book number and page number.

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Land Description by Recorded Plat
27
Lot Types
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Assessors Map
The tax assessor assigns every parcel of land in
the county its own parcel number. For example,
the westernmost parcel (lot 50) in the map
carries the number 34-18-8, meaning Book 34,
Page 18, Parcel 8 (circled).
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Physical Characteristics of Real Estate

• Immobility Real estate is fixed in location. It
  cannot be moved (at least not easily).
• This feature implies that the services provided
  by real estate are produced at fixed locations.
  Hence, the consumer of property services must be
  brought to the product because the product cannot
  be brought to the consumer.
• In addition, the inherent fixity of location of
  real estate makes the utility of a parcel of real
  estate and, hence, its value, dependent upon the
  characteristics of the parcels location and
  surrounding properties.

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Physical Characteristics of Real Estate
(continued)

• Indestructibility (Durability) The life of land
  is regarded as perpetual, at least in the
  physical sense.
• The durability of the utility, and hence the
  value, of a site, however, can be affected by
  changes in its situs (or locational desirability)
  and by its improvements.
• Most improvements lasts a long time and are
  capable of producing property services for a long
  time. However, the economic life of improvements
  is often shorter than its physical life.
• If a site retains economic value, the old
  improvements can be torn down and replaced with
  other improvements.

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Physical Characteristics of Real Estate
(continued)

• Nonhomogeneity (heterogeneity) Each parcel of
  real estate is essentially unique because no two
  locations are exactly alike.
• This implies that different parcels of land are
  not perfect substitutes. The lack of complete
  substitutability of different properties, in
  turn, results in real estate markets having
  monopolistic characteristics.
• Nonetheless, even though real estate is
  nonhomogeneous, in many cases sufficient
  similarity often exists among properties to
  permit an acceptable degree of substitution.

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Economic Characteristics of Land

• The economic characteristics of real estate the
  characteristics affecting value are influenced
  by its physical characteristics.
• Scarcity Certain types of land and locations
  may be in short supply relative to demand. Land
  itself is not in short supply, Instead, land in
  particular locations may be in short supply
  thus, scarcity is relative to location.
• Modification Land can be modified by
  improvements.
• It is by means of improvements that the land
  becomes productive for human purposes and that
  the utility of land is increased.
• The utility of a land parcel can be increased by
  improvements to the subject parcel or to
  neighboring parcels.

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Economic Characteristics of Land (continued)

• Fixity of Investment This economic
  characteristic refers to the long time-term
  nature of investments in real estate as a result
  of both its cost and its longevity.
• This economic characteristic implies that when
  evaluating a site, developers and investors must
  attempt to determine not only what the best use
  of a site is today but also what the best use
  will be in the relatively distant future.
• In addition, monetary returns obtained from real
  estate investments are earned over a long time
  period. Thus, real estate investments typically
  require long-term financial commitments.
• Furthermore, the long-term nature of real estate
  investments gives rise to special risks. The
  risks involved with long-term investing stem
  mainly from possible changes in market conditions
  over time, and increasingly with changes in
  political, regulatory, and tax environments that
  can occur over time.

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Economic Characteristics of Land (concluded)

• Situs Situs refers to the desirability (demand)
  of land parcels based on their particular
  locational characteristics.
• The inherent fixity of location of real estate
  makes the utility of a parcel of real estate and,
  hence, its value, dependent upon the
  characteristics of the parcels location.
• Situs may also be a function of locational
  relationships between the site and other land use
  activities on the geographical landscape, such
  proximity, ease of accessibility, and in some
  cases separation from, other land uses.
  Locational relationships are affected by access
  to transportation facilities that provide
  accessibility.
• A parcels situs, or its locational desirability,
  may be a function of the parcels relationship to
  natural features, such as views, natural
  amenities (e.g., a lake front or a beach), and
  local climate. It can also be influenced by
  other natural factors such as topography
  (terrain).