1. Introduction to Real Estate Appraisal

Real Estate and Property

• Real estate includes surface, subsurface, and airspace above
• Improvements are also called fixtures

Distinguishing Real Estate from Personal Property

• Personal property is defined as “all tangible property that is not real estate”
• Personal property is usually excluded from a real estate appraisal
• Tests to distinguish between real estate and personal property: method of attachment, adaptation, and intention of interested parties
• Trade fixtures (installed by a tenant in connection with a business) are not considered part of the real estate

Real Property

• Real property includes interests, benefits, and rights inherent in ownership of real estate
• Bundle of basic ownership rights: right to use, lease, enjoy, encumber, will, sell, or do nothing
• Appurtenant rights: easements, mineral rights, water rights, etc.
• Possessory interests in real property are estates, while nonpossessory interests are encumbrances

Estates (Possessory Interests)

• Freehold estate: an estate that includes title, with a potentially perpetual duration
• Life estate: terminates automatically upon a designated person’s death
• Leasehold estate: gives possessory rights to a tenant for a period of time
• Types of leasehold estates: tenancy for years, periodic tenancy, tenancy at will, and tenancy at sufferance

Encumbrances and Government Restrictions

• Encumbrances: restrictions on the use of real property, such as liens and easements
• Government restrictions: zoning laws, building codes, and other regulations that limit the use of real property
• Eminent domain: the power of the government to take private property for public use, with compensation to the property owner

Real Estate Financing Industry

• Primary market: individual borrowers and lenders
• Secondary market: loans are treated as investments, packaged into mortgage-backed securities
• Government-sponsored enterprises: Fannie Mae and Freddie Mac
• Depository institutions: banks and other financial institutions that provide financing for real estate transactions

Real Estate Definitions

• Property: anything that can be owned, including real and personal property
• Real estate: an identified parcel or tract of land, including improvements
• Inverted pyramid: a concept illustrating the idea that ownership of land includes everything above and below the surface

Improvements and Fixtures

• Improvements: something that has been added to or becomes part of the land in some way
• Fixtures: movable items that are adapted to the property and become part of the real estate

Real Estate Appraisal and Financing

• A tenancy at sufferance occurs when a tenant remains in possession of a property after the expiration of their lease.
• An individual borrower and lender make up the primary market for real estate financing.
• A fixture is an item that was once personal property but has been attached to real property, such as a shed attached to the land.

Estates and Interests in Real Property

• Real property refers to the land itself, plus any improvements made to it.
• A bundle of rights in real property includes the right to possess, use, enjoy, encumber, will, and sell or transfer the property.
• An appurtenance is something that goes along with the ownership of the land, such as air and water rights or certain types of easements.

Types of Estates

• There are two main categories of interests in land: estates and encumbrances.
• Estates can be further divided into freehold estates, which include title to the property, and leasehold estates, which do not include title.
• Freehold estates can be divided into fee simple estates and life estates.

Liens and Encumbrances

• A voluntary lien is one that is granted by the property owner, while an involuntary lien arises through operation of law.
• A general lien attaches to all of the debtor's real estate, while a specific lien attaches only to a specific piece of property.

Nonfinancial Encumbrances

• Nonfinancial encumbrances affect both the title and use of a property and can include easements, profits, and private restrictions.
• An easement is a nonexclusive right to use someone else's land for a particular purpose and can be classified as an easement appurtenant or easement in gross.

Easements

• An easement appurtenant benefits one piece of land for the benefit of another piece of land and involves two tenements: the dominant tenement and the servient tenement.
• An easement in gross, on the other hand, benefits a particular individual or organization rather than a parcel of land.

Profits

• A profit is a property interest that allows the holder to use someone else's real estate and involves the right to take something away from the land, often involving renewable resources.