Here you have the first post in our new series presenting vital concepts from our unpublished easy-to-digest course content. This series showcases the basics for a DRE licensee to prepare a Broker Price Opinion (BPO), starting from defining property to conveyancing.
Why this article matters to your practice: Property pricing maxed out in early 2022, following a very long cycle of buyers and tenants chasing the rising price of property. Concern for an evaluation was dropped from the price-setting conversations. That has changed. Rational judgment – caution – has returned for most all prospective buyers and tenants. And with it, brokerage services, and the necessity of comparable market analysis (CMA) – the BPO, aka Appraisal.
Property includes real estate
Property is divided into two primary categories:
- real estate, also called real property or realty; and
- personal property, also called personalty.
Real estate is characterized as immovable, whereas personal property is movable. [Calif. Civil Code §§659, 657]
Personal property is defined, by way of exclusion, as all property which is not classified as real estate. [CC §§658, 663]
For most people, the term real estate means a physical or tangible thing. However, real estate is broadly defined to include rights which arise out of the ownership of a parcel of real estate.
Thus, real estate is referred to as comprising a bundle of rights, which for the purposes of this study, is called a parcel of real estate, or simply a parcel.
Further, real estate can be owned. In turn, ownership is the right to possess and use a parcel of real estate to the exclusion of others. [CC §654]
The right to possess and use a parcel includes the right to:
- occupy;
- lease;
- encumber; or
- sell or dispose.
Related video:
The possessory interests in real estate
The various possessory interests a person may own in real estate are called estates.
Four categories of estates exist in real estate:
- fee estates, also known as fee simple estates, inheritance estates, perpetual estates, or simply, the fee;
- life estates;
- leasehold estates, sometimes called leaseholds, or estates for years; and
- estates at will, also known as tenancies-at-will. [CC §761]
In practice, these estates are separated into three categories: fee estates, life estates and leasehold estates. Estates at will are considered part of the leasehold estate category.
A person who owns a fee estate interest in real estate is a fee owner. A fee owner has the right to possess and control their parcel indefinitely.
A fee owner’s right to possession is exclusive and absolute. Thus, the owner of a fee has the right to deny or grant others permission to cross their boundaries. No one may be on the owner’s parcel without their consent as they are trespassing. The owner may recover any money losses caused by a trespass.
A fee owner of a parcel has the exclusive right to use and enjoy the parcel. So long as local ordinances, such as building codes and zoning ordinances are obeyed, a fee owner may do as they please with their parcel. A fee owner may build new buildings, tear down old ones, plant trees and shrubs, grow crops or simply leave the parcel unattended.
The division of the fee into separate fee ownerships
The fee ownership in a parcel may be separated into several distinctly different fee interests. One person may own the mineral rights beneath the surface, another may own the surface rights, and yet another may own the rights to the air space. Each solely-owned interest is held in fee in the same parcel.
A life estate is an interest in a parcel of real estate lasting the lifetime of a named individual, usually the life of the tenant. Life estates are granted by a deed executed by the fee owner, an executor under the owner’s will or by a trustee under the owner’s inter vivos trust.
In contrast, leasehold estates, called tenancies, are the result of a fee owner of a parcel of real estate (or the life estate tenant or master lessee) conveying the right to possession of the parcel to a tenant. Tenancies are created when the landlord and the tenant enter into a rental or lease agreement, as they contain a provision conveying a possessory interest in the parcel to the tenant. Leasehold estates are controlled by landlord/tenant law, not contract law, not mortgage law and not real estate law.
