Every residential real estate transaction has both real and personal property. It is also possible for real property to become personal property and personal property to become real.
Real property is the land and also any improvements built upon it. In most cases it is also anything that would be considered immovable or affixed to the land; this may occur naturally or by man. Here are some examples of what is commonly referred to and considered to be real property: land, houses, trees, streams, wells, window treatments, and light fixtures, to name a few.
Personal property is just about everything else that is not considered real. For example, plants may be considered either real or personal, but those that are in pots would be personal property. All belongings in the house that are not considered a fixture are also personal and are most often not included in the residential purchase agreement. Though, there are always exceptions to the rule and anything is negotiable. Sometimes negotiations will include some personal property to remain in the home at the close of escrow, such as furniture.
I advise home owners who are considering listing their home for sale that fixtures such as their prized chandelier hanging over their dinner table will be transferred in the sale, if not otherwise noted in the listing agreement or residential purchase agreement. Everything is negotiable, it is vital to become educated or hire an agent that is well versed in all aspects of residential real estate transactions. A fixture is also something that it is customized to the property in such a way that removing it would be removing a part of the real property.
It is important to note that though the law is very strict about what is personal and real, anything is negotiable. The most important thing a seller and his or her listing agent can do is when in doubt, exclude items for transfer in the applicable real estate contracts. As long as it has been agreed upon by both parties before the close of escrow, there is nothing to worry about.
This is an area of real estate that is not always clearly explained to the buyer and seller and it can add unnecessary tension between the buyer and seller as well as added stress to agents and other third parties involved. It is always advantageous to point out examples of real and personal property to buyers and sellers early in the relationship.
Personal property is defined as all property that can be owned and does not fit the definition of real property. In other words, if it is not real property then it is personal property. An important distinction between the two is that personal property is movable. Personal property is also referred to as chattels. For those of you who like to work on expanding your vocabulary.
Next let’s look at some examples of personal property including manufactured housing, plants, crops, and classifications of fixtures.
Manufactured Housing is defined as dwellings that are not constructed at the home site. These are normally trucked in and placed on the property. For those of you breaking down the word manufactured, and wondering why all homes aren’t considered manufactured, since they are after all “manufactured” think of mobile homes as manufactured. Here’s the tricky part, if the manufactured home has been attached to the property then it is REAL property, if it is just sitting there and hooked up to utilities then it is PERSONAL property. Why would it matter? Well, if it is REAL property, then the property taxes are higher because the government sees the homes as essentially adding value to the land it sits on.
Plants and Crops: There are two categories here and both have their differences. Trees, perennials, shrubbery and grass that do not require annual cultivation are considered real property or real estate. And these transfer with the sale of the property. Crops on the other hand that are harvested on an annual basis, are considered emblements. Or personal property and in the sale of the property, the crops that are being produced stay with the seller for that current harvest.
Here are some additional details… if an item on the land, let’s say a tree (which is real property) is cut down and separated from the land (called severance), then it becomes personal property. It is also possible to do the same thing but the other way. If the tree that was cut down is used to build a home on the property, through annexation, it become real property.
Fixtures – these are often the hot topic in the sale of a home because sellers often take their fixtures with them when they move, and that is against the agreement set out by the contract. Knowing what a fixture is, will help you understand what to expect stay with the home and what does not. A fixture is personal property that has been affixed (attached) to the land or building and it becomes real property. Remember real property stays with the home when it is sold.
How do you test if an item is a fixture or personal property? Here are the three basic tests the court will use to decide.
The overall rule is to determine, what is the purpose of the fixture? Is its function to be personal property or a real property?
Trade Fixtures are the exception to the rule. A trade fixture is property used in the course of business. Often it will be attached to the property and resemble real property. However, if it is something used as part of the seller’s trade, it is considered personal property and does not stay with the home. Often home buyers will be looking at homes and what draws them to the home will be certain aspects of the home. Fixtures such as entertainment centers, backyard gazebos and surround sound speakers are often considered fixtures and real property that will stay with the home. However a home owner may consider those items of great value and may be planning on taking them to their new home. It is very important to identify what fixtures you want and expect to stay in the home and put those items in the purchase agreement so everyone will be on the same page and in agreement from early on.
Personal Property Appraisers work together for you, I handle antiques and residential contents, horses and those pesky landscape plantings. Yes, that means trees and shrubs on which you spent lots of money and you should be able to add their value to the price of your home or office. You should be able to insure them. People steal trees. Yes, planted trees. Happened to a close neighbor a few years ago: New planting, forty young Locust Trees all planted, mulched, watered and in the morning…gone. Value, forty times $90.00 each, uninsured. Other personal property appraisers handle all the other “stuff” mentioned and much, much more.
So, you need an appraisal to insure stuff and you need an appraisal to claim against loss, damage or theft using your insurance. You need an appraisal and a rider on your insurance for sterling silver, fur coats, jewelry and antiques both house antiques and garage antiques. You need an appraisal for an estate when someone dies and leaves over a certain amount of value, you need an appraisal to donate something other than cash if the value is over a certain amount and you may want an appraisal to buy or sell something.
You need an appraiser if you wish to donate something other than green money. There are some pretty specific rules about that but it’s doable. Many things are acceptable as donations, even horses. It is possible to donate items to an organization which wishes to sell them but there are even more strict rules about that and it takes time.
An example for a personal restricted use appraisal: You want to buy something rather exotic…a helicopter. There’s a really cute little one for sale over at the local airfield but how much should you pay? Enter your friend the personal property appraiser. A call goes out to the helicopter guy who’s a mechanical and equipment appraiser with make, model, year, engine hours and pictures via email. The helicopter guy does some research and gets back. Down and dirty: It’s called a restricted use appraisal and it’s just for you to help you when you need a value to clarify your thinking. OK, helicopters are awfully exotic. Try this one: Your daughter has talked you into a horse, it’s always a daughter, and sons want cars. Same process, only this time we go with her, have her try the horse, stop her if we think that the horse is beyond her or a poor choice in some other way. Maybe suggest some places for a suitable horse, a boarding stall and lessons on how to handle and ride that very large animal. Then we help establish what the selling price for that horse should be in the same restricted use format, FYI.
Grandma just moved to a nice little one floor condo where dinner is served in the “club house” every night and there’s always something happening. She’s tired of dusting that generational junk so she’s left it to you to handle. Relatives have come out of the wood work all saying that grandma or grandpa promised them the same thing. Grandma won’t say but she does say, “NO QUIBBLING!” Now this is a little different, you don’t give…well, you don’t care what a single item in that house is worth but you want grandma to have as much money as possible because you like seeing her smile and play Bridge or Euchre or Texas Hold ’em for all you care and have friends again instead of a big old empty house.
You have a liquidation problem. There’s a lot of that going around right now, liquidation, that is.
We can help with that, too. Most personal property appraisers also handle liquidations or auctions or some other form of dispersal of personal property. We will help you decide whether to sell the stuff locally or perhaps it would sell better in a regional auction house. Now you have another problem, squabbling relatives. Grandma refers them all to YOU! there are many ways to handle this, auction houses are one, local well-advertised liquidation sales, sometimes called “estate sales” are another If your choice is auction we help you get the stuff organized, packed and delivered, you pay us by the hour. If you choose a liquidation type sale we come in price and organize everything. The family comes in and makes it’s choices, bookkeeping is done so that each member knows what each other member took. When the sale ends, the money is divided in such a way that all the family members come out about equally. It’s all about what grandma said, “no quibbling”.
Haven’t hit your hot button yet? Well, I’m trying. I really want to tell you what you want to know. Lets see: Insurance, donation, estate tax liability, litigation support, asset valuation. How about collateral for a bank loan? You think you have something that might be enough, a heard of fancy cattle with a bull? A small airplane? A VanGogh? well, maybe not that but how about six John Marin water colors from early in his career or the cells from an early Disney movie with a letter from Old Walt Himself? The banker looks askance. You need a personal property appraiser, those things have value.
Do we do this out of the goodness of our hears? Of course not. Do you put in forty hours a week at your office out of the goodness of your heart, of course you don’t. We charge by the job or by the hour. Never do we charge by the amount of value we will bring to you, that’s unethical, a very big no, no. We take photos, make inventories, do research, help you to understand what kind of value you need. Remember sentimental value is zero.
There are many reasons why you will have the need of a Personal Property Appraiser in your life time. An Appraiser can do many things to help in your life. When you are in need of cataloging or placing a value on your many collectables call an appraiser. One thing is they can help protect your investment in collectables from art to zebra rugs and everything in between, by providing a complete inventory of all your items in question.
Second benefit of hiring a Personal Property Appraiser is they are unbiased and not involved in any disputes of value when it comes to an appraisal. They use recent market activity to figure out the current value that is needed for your collection and provide you with a report. This is very important when it comes to tax donations, IRS requires an appraisal before accepting the donation.
The third reason is they are very helpful is, they catalog your collectables in one report and supply you with their current value. A Personal Property Appraiser should provide you a printed copy and an electronic copy on a PDF for your safe keeping. This is very helpful in times of disaster to refer to, or when there is an inheritance involved and the children want to know what a parent had and its current value.