Are you in the process of purchasing a home, drafting a lease agreement, finalizing a will or selling your property?
If yes, then it’s about time you learned about what exactly is a real property and how is it different from a personal property.
For starters, a property can be described as an asset which is legally owned, sold or regulated by a person, or an entity. In purely legal terms, a property can be classified into many different categories.
Broadly, any type of property can be classified into two major categories - Real and Personal.
In this article, you will learn more about the fundamental difference between real property and personal property types.
Plus, you will also learn about how to evaluate these two property types differently.
Wondering how it matters to know the difference? Firstly, it will help you exercise and safeguard your property rights.
Secondly, understanding the different types of property will help you make better decisions related to sale, purchase, rent or lease.
This is important because different states have their own set of rules and guidelines to distinguish between real and personal property.
For example - tax laws can treat different types of property differently. Even the transfer of ownership rights of a property is subject to change on the basis of the type of property it is, and the local laws that govern it.
One way to be sure that you are on the right side of the law especially when dealing with immovable assets like real property is to hire a real estate agent. It is because an agent, having gone through a real estate license online course, will have all the updates governing the industry.
Real estate laws are complex and constantly evolving. Do not take chances but always get an agent with a real estate license to advise you when you are dealing in real property.
Definition of Real Property
So, what is Real Property in Real Estate? Put simply, anything that cannot be moved from one place to another can be termed as Real Property.
Real property is a possession which is immovable, which encompasses lands, buildings and fixtures attached permanently to a land, such as lawns, backyards, barns,patios, pools, gardens, ponds, wells, etc.
Thus, a real property includes the physical land as well as the things that grow on the land or are permanently attached to it - whether natural or man made. Even resources such as wood, gas, oil or minerals growing on a land can be considered as a part of the real property.
Even the materials used to construct the property on the land can be filed under real property.
If a person owns a real property, this means they also own the tangible assets, fixtures and possessions which are a part of the land.
This means that real property is immovable and is determined by its permanence.
Definition of Personal Property
Having understood the definition of real property, let us understand what is personal property in real estate.
Any property which is movable and is not attached or fixed to a land can be termes as personal property. This type of property can be in any form, and not just limited to homes, structures or natural resources.
Personal property can further be classified into tangible and intangible properties. Tangible properties refer to assets (objects, possessions) which can be seen, felt or traded. Some examples include - vehicles, artwork, jewelry and ornaments, physical gold and silver, furniture, tools and machinery, etc.
However, they can be owned by an individual or an entity, and are subject to legal and jurisdictional rights.
Here are some examples of intangible property types - bonds, accounts, equities, trades and stocks, licenses, copyrights and intellectual property, patents, etc.
In some states, tangibile properties are also known as ‘Chattels’ or ‘Fixtures’ - they are personal properties that might be attached permanently to a real property.
Consider the example of a furnace - when inside a store or a factory, it can be termed as personal property.
However, if in the case a personal property is attached to that house, it will be termed as a fixture. A fixture can then be filed under real property.
Characteristics of Real Property
Now that we have briefly described the definition of real and personal property in real estate, it is important to further expand.
Understanding what differentiates a real and a personal property is a sound decision.
It will help protect your legal rights, plan your taxes better and keep you updated with the current regulations.
Ready to learn more about the differences?
Let’s first dive deep into the characteristics of real property to understand what is real property in real estate.
The foremost characteristic of a real property is its location, or rather, the permanence of its location.
By real estate definition, a real property comprises any immovable asset fixed permanently on a piece of land.
The main characteristic of a real property is its inability to be moved and its permanent attachment to land.
This generally includes - houses, perimeters, walls, door fixtures, patios, pools, gardens, etc.
Even raw materials and natural resources such as wood, metal, minerals, etc. found beneath or adobe the surface of the land are a part of real property.
The fixed location and the tangible nature of the real property is what makes it classifiable as real property.
The second characteristic of a real property is its permanence of position i.e. its immovable nature.
Real property is a possession that cannot be moved from one point to another. This means that you cannot move it and place it to a new location.
Attached to Land or Structures
A real property is usually attached to a piece of land in such a way that it is difficult or impossible to move it.
Possessions that are attached to a land or a structure in a real or a man-made way, can also be filed under real property.
Some examples include - ponds, patios, gardens, detached garages, lawns, swimming pools, etc. as these are also not easily movable or transferable from one place to another.
Ownership Rights and Transfer
Understanding the ownership rights for a real property can be complicated, since it encompasses more than just the structural property built on a land.
Real property includes both tangible and intangible rights, such as -
- Right to Execution: Property owners have the deciding rights on who is allowed to enter the property. Owners also control the access to the property.
- Right to Possession: Real property owners can exercise their right to live in their property.
- Right to Disposition: The owner of a real property has the right to transfer their ownership to any other person or entity.
- Right to Control: The property owner can modify, destroy, control or lease their real property to another person or entity.
What characteristics define a Personal Property
What are the key characteristics of a Personal Property
Now that you know everything about real property in detail, it’s time to learn more about the different characteristics of personal property.
Any property that is not a real property, can easily be termed as a personal property.
Additionally, even personal property can be further classified into two sub categories, namely - Fixtures (or Chattels) and Intangibles.
The first and foremost characteristic of a personal property is that it can be moved from one place to another and is ownable.
Personal property can come in any form, tangible or intangible, and it is sometimes also referred to as an asset that comes with ownership rights.
For example - a car is a tangible personal property which can be owned by a person and can be moved from one place to another freely.
An example of a non-tangible personal property is a copyright, a stock or an intellectual property which belongs to a person or an entity, and is fully moveable from one place to another.
A personal property is moveable from one place to another and fully transferable from one person to another.
It is clear that any property which can be owned and is not fixed permanently or attached to a piece of land, can be termed as a personal property.
Tangible or Intangible
As we have discussed above, Tangible and Intangible property are two classification of a personal property.
Tangible personal property, sometimes referred to as chattels, is something that can be seen, felt, held or touched. It has a physical value or dimension to it, as in, an object or a thing.
For example - vehicles, jewelry, furniture, pets and livestock, etc. can be classified as personal property.
On the other hand, an intangible personal property is a non-physical possession, which has its ownership rights. It cannot be touched, held or seen in the real world, and it merely exists as a legal right with its own value.
Here are some examples of intangible assets which can be filed as personal property - stock options, equities, bonds, trademarks, patents, franchise ownership rights, etc. All these have an intrinsic value attached to them, but they cannot be physically touched or held.
It is important to note that in some cases, a tangible physical property or a chattel can also be considered as a real property if it is attached to a piece of land or a real property.
Ownership Rights and Transfer
When it comes to understanding the ownership rights for real property vs personal property, one must first understand how rights are transferred.
Why is it important to understand? Well, if you ever have to transfer or inherit a property, regardless of whether it’s a small or a large amount, you should be aware of the different ways and options involved, especially if you work with a property attorney.
Not only will this help you reduce complexity, it will also help you minimize taxes.
One of the ways is using a deed. In real estate, a deed is the legal means of transferring ownership rights between two parties.
A deed is a written document which works as a binding clause or contract between two parties, and is subject to legal jurisdiction in the court of law.
As part of the deed, one party transfers the ‘interest’ and the other party acquires the ‘interest’.
Another way of transferring the ownership rights is by using a will. A will is a written document by the owner of a property at the event of their death, and is used as a legal testament to decide the future ownership of a property.
Further, transferring of real estate is also possible through relinquishment. Though not a common method for ownership transfer, relinquishment of legal rights for a real or personal property is also considered a means of property transfer.