In real estate appraisal, an important distinction is made between the terms real estate and real property.
Real estate is the physical land and appurtenances affixed to the land. Real estate is immobile and tangible. The legal definition of real estate includes land and all things that are a natural part of land (e.g., trees) as well as all things that are attached by people (e.g., site improvements)
Real property includes all interests, benefits and rights inherent in the ownership of physical real estate.
Interests in property vary, so real property is said to include the "bundle of rights" inherent in the ownership of real estate. The individual rights in a bundle of rights can be sold, leased, transferred, or otherwise disposed of separately, subject to government limitations and private restrictions. Thus, certain rights can be severed from the ownership of a property and be sold, leased, or given to others.
It is possible to own all or only some of the rights in a parcel of real estate. The extent of ownership determines the kind of interest, or estate, that is held.
A person who owns all the property rights is said to have a fee simple title. A fee simple estate implies absolute ownership unencumbered by any other interest or estate.
Partial interests in real estate are created by selling, leasing, or otherwise limiting the bundle of rights in a fee simple estate. Partial estates include leased fee and leasehold estates.
A leased fee estate is an ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others; the rights of the lessor (the leased fee owner) and the lessee (leaseholder) are specified by contract terms contained within the lease.
A leasehold estate, which is held by a lessee (the tenant and renter), conveys the right of use and occupancy for a states term under certain conditions.
Appraisers not only distinguish between real estate and real property, they also differentiate between real estate, personal property, and trade fixtures.
Personal property includes movable items of property that are not permanently affixed to, or part of, the real estate. (Personal property is not endowed with the rights of real property ownership).
A fixture is an article that was once personal property, but has since been installed or attached to the land or building in a rather permanent manner; it is regarded in law as part of the real estate. (A fixture is endowed with the rights of real property ownership and is part of the real estate).
To decide whether an item is personal property or a fixture, and therefore part of the real estate, courts often use the following criteria.
The manner in which an item is affixed. Generally, an item is considered personal property if it can be removed without serious injury to the real estate or to itself.
The character of the item and its adaptation to the real estate. Items that are specifically constructed for use in a particular building or installed to carry out the purpose for which the building was erected are generally considered permanent parts of the building.
The intention of the party who attached the item. Frequently, the terms of the lease reveal whether the item is permanent or is to be removed at some future time.
If an item is classified as a fixture, it is part of the real estate, and its contribution to value is included in the value estimate.