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What Is Real Property?

5-Minute Read
Published on November 10, 2020
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Anyone considering property ownership will come across the term “real property” in the legalese. But what is real property? Real property defines which rights you possess in relation to your property, and which ones you don’t.

Let’s take a closer look at what you need to know about real property.

Real Property, Defined

Breaking down what “real property” means … Property signifies a legal possession, right and use of an object, whether it be tangible or intangible. The Cornell Legal Information Institute defines real property as “not only the face of the earth, but everything of a permanent nature over or under it.”

Conceptually, it’s easy to think of it as everything you would inherit rights to at the transfer of ownership of a property. For example, house hunters ought to know that the playground set, if freestanding, likely isn’t explicitly bundled with the real property you’re seeking to purchase.

Every property deed, lease or other transfer of ownership document will include a property description that explicitly identifies the perimeter of ownership, whether it be marked by a glimmering lakeshore or a fence.

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Real Estate Vs. Real Property: What’s The Difference?

You may be more familiar with the concept of real estate than the concept of real property and for good reason. Real estate describes the plot of land and the man-made and natural resources attached to it, whereas real property describes an individual’s legal limits and liberties on how to use said real estate.

Think of it this way: real estate is tangible land, buildings and garden beds. But real property is a legal concept that attaches a ‘bundle of rights’ to the property. The bundle of rights is nearly universally recognized as:

  • The right of possession: The title holder owns dominion over the property.
  • The right of control: The title holder can make any legal changes to the property, provided they don’t break any covenant rules with a homeowner’s association.
  • The right of exclusion: The title holder holds sole permission of entry to the property, excepting warrants to search the property.
  • The right of enjoyment: The titleholder is allowed to enjoy their property in any (legal) manner they desire.
  • The right of disposition: Once the titleholder maintains full equity in the property (no longer mortgaged), they may transfer ownership however they legally choose.

 

These real property rights are critical to property owners. After all, what’s the point of investing in real estate without the above legal rights?

Real Property Vs. Personal Property

If you’re not sure if something is real or personal property, ask yourself this: Is it moveable? If not, it’s likely real property.

Let’s say you purchased a lakefront property and decided to build a dock. You bought power tools, some nails, the wood to construct the dock and anything else you might need. As individual pieces, these supplies are your personal property. Once you’ve built the dock and affixed it to the land, it’s no longer moveable and has become real property. Although the dock is real property, any power tools or items not affixed to the land will remain your personal property.

Here’s another example. Suppose that you build a shed on the property. Within the shed, you store tools and other personal items. In this case, the shed would be considered real property. However, the items within the shed that can be easily moved, like power tools or boxes of decorations, are considered personal property.

The Different Types Of Estates In Real Property

Once you understand what encompasses your real property, it’s important to understand how that property is owned. There are two different major classifications of estates, separated by the duration of ownership: freehold and non-freehold ownership.

Here’s a closer look at each.

Freehold Estates

Freehold estates allow ownership for an indefinite period and include, but are not limited to, the following:

  • Fee simple: Simply put, a fee simple ownership is indefinite. Fee simple estates, often confused with fee absolute estates, are the most common and most valuable property type. Owners of fee absolute properties have the right to make any legal changes to the property, to sell the property or transfer ownership to beneficiaries.
  • Life estate: Life estate is a special ownership type that’s tied to the life expectancy of the grantee, called a “life tenant.” When the life tenant passes away, the ownership will be transferred to the person of their choosing. During the lifetime of the life tenant, the designated heir is enjoying a future interest ownership.

 

When you own a freehold estate, you and your beneficiaries can benefit from the bundles of rights associated with a real property.

NonFreehold Estates

Nonfreehold estates, on the other hand, are property types limited by duration. The most common type is the leasehold. If you’ve ever rented an apartment or a house, you’ve entered into a leasehold agreement, which grants lessees the right to occupy land owned by the lessor.

As a lessee, you will have access to the bundle of rights associated with real property for a finite period. For example, let’s say that you rent an apartment. You’ll have legal access to that real property for the duration of your lease. But when the lease is up, those rights revert to the lessor.

Examples Of Real Property

Real property is anything affixed to the land in question. Examples of real property include, but are not limited to, the following:

  • Pond
  • Dam
  • Shed
  • House
  • Private road
  • Machinery
  • Crops
  • Basketball court
  • Well
  • Sewage system
  • Dock
  • Canals
  • Fences
  • Landscaping
  • Minerals
  • Buildings

Each of the real property examples above highlights the fact that real property must be affixed to the land. For example, the fence in your front yard would be considered real property. With that, you can't pack it up to take with you when you go.

In most cases, real property includes items that you wouldn’t even think to pack up when you sell the property. For example, let’s say you sell a property with a grove of pecan trees. The grove would be considered real property, which means you can’t take it with you. But how many of us would attempt to move entire trees when selling the property?

Keep in mind that real property laws vary from state to state. Some states may designate trees as personal property if their removal does not damage the land. State law also varies when it comes to defining ownership rights to the land under the property. If you plan to make significant changes to the land on a prospective home, it’s wise to consult with a local contractor who is familiar with local laws.

The Bottom Line

If considering buying or leasing a property, understanding real property is helpful. With a better understanding of what is considered real property, you’ll be better prepared when choosing a piece of property to purchase. And you’ll have a better grasp on which of the two main types of real property your agreement falls into. It’s either a freehold or nonfreehold estate.

The right information can set you up for success! As you explore your land ownership options, take advantage of the free resources available in the Rocket Mortgage® Learning Center.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer that enjoys helping readers learn more about their finances. She has an MS in Business Management from the University of Florida. You can connect with her on LinkedIn or Instagram @adventurousadulting.