Real Property or Personal Property?

Federal law classifies all property as either real property or personal property. Real Property is defined as the physical land and everything attached to it, plus the rights of ownership (bundle of rights) in real estate. Real property is also called realty. Personal property is defined as tangible items not permanently attached to, or part of, the real estate. Personal property is also called chattel.

People tend to think of the land itself when they hear the term “real property”. The term refers to much more than rocks and dirt, however. It also encompasses items attached to the land (attachments or improvements), rights that go with ownership of the land (appurtenances), and limitations on the use of land (public and private restrictions). These are important because homeowners must be aware of issues and distinctions that may impact value for property they are considering as collateral for a loan.

The distinction between real property and personal property becomes important whenever the ownership or possession of land is transferred. Unless otherwise agreed, the law says that all of the real property is included in the transfer, but personal property that happens to be on the land is not included. Because of this legal doctrine, buyers and sellers, landlord and tenants, owners and foreclosing lenders often disagree about whether something is real property or personal property. Determining what type of property certain items are can sometimes lead to serious disputes and court battles.

For example, a built-in dishwasher would be considered part of the house but a refrigerator would most likely be considered a personal items and therefore not included in the sale. Built-in bookcases are considered real property but a sofa is personal property. An in-ground pool is real property, but an above ground pool is not. Lenders must be aware of this because the presence or absence of built-in items might affect the value of the property, but personal items should not influence value.

One less clear-cut example to contemplate is carpeting. Wall-to-wall carpeting would be considered real property, unless there are hardwood floors underneath. The idea behind that is that removing carpet and leaving hardwood floors does not diminish the value of the property, whereas leaving unfinished sub-flooring would. Often, disputes arise over things like storage sheds, satellite dishes, and chandeliers. Potential buyers and sellers of real estate should always discuss these things openly with their real estate agents and have issues resolved clearly before settlement to avoid potential problems and disputes. When necessary, property that will be staying in the house and used by a new buyer should be specifically stated as such in the purchase agreemen

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