Real estate or property
Real Estate vs. Real Property: Differences & Terms
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- 0:01 Real Property vs. Real Estate
- 1:38 Real Property vs.…
- 2:13 When Personal Becomes…
- 3:25 When Real Becomes…
- 3:45 Tangible vs.…
- 4:26 Lesson Summary
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Real Property vs. Real Estate
Real estate professionals, investors, and even homeowners need to be able understand and differentiate between types of property that may be involved in a real estate transaction. The first big distinction that you must understand is the difference between real property and real estate.
You can think of real estate as land, the natural resources that are on or under it, and any man-made structure that is permanently attached to it. Let’s look at a farm as an example. The land is part of the real estate, but so are the farmhouse, barns, and other permanent structures. You should note that any type of development on land that changes its original state and increases its economic value is considered an improvement. The farmhouse and barns on our farm are improvements. Similarly, any crops or trees on the property are also part of the real estate as is any gas or minerals that happen to be under the dirt. The farm animals, however, are not part of the real estate because they are not land and are not permanently attached to it. We’ll get back to the farm animals later.
So what’s the difference between real estate and real property? Real property is a broader concept than real estate. Real property is a concept that not only includes real estate but also a bundle of rights related to the real estate. In other words, real estate is a term that defines a set of physical things, while real property is a concept that includes those things plus the legal rights attached to it. Some common real property rights include ownership, possession, and use and enjoyment.
Real Property vs. Personal Property
What about the farmer’s cows, pigs, chickens, and tractors? These are personal property. Personal property is pretty easy to understand. If a piece of property is not real property, it is personal property. Don’t forget that real estate is real property. In other words, personal property is all property that is not real property. If it’s not land and the natural resources on or under it or the man-made stuff permanently affixed to the land, the property is personal property. Sometimes movable personal property is called a chattel.
When Personal Property Becomes Real Property
Sometimes personal property can become real property and real property can become personal property. Let’s consider our farmer’s house to see how a piece of personal property can become real property.
Let’s say that our farmer has just installed a new Jacuzzi bathtub in a bathroom. The tub has become a fixture, which is a piece of personal property that has been permanently attached to real property and becomes part of it. We call this transformative process of personal property becoming part of real property annexation. Fixtures may not be removed before closing a sale because they are considered an improvement to the real property.
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