Legal Considerations in Appraisal Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 2

STUDENT LEARNING OUTCOMES Define Real Estate, Real Property & Personal Property; give examples; and describe their differences Define and give examples of the Bundle of Rights Explain and provide examples of the three broad categories of restrictions on the use of real property 2 Page 18 © 2015 OnCourse Learning

STUDENT LEARNING OUTCOMES Define the four governmental restrictions on the private ownership of all property List and provide examples of the major types of legal descriptions List and explain the five requirements for a valid contract 3 Page 18 © 2015 OnCourse Learning

2.1 PHYSICAL & LEGAL CHARACTERISTICS OR REAL ESTATE Property consists of rights that have value – “valuable rights held to the exclusion of others” Example The right to occupy and enjoy your home is a valuable right 4 Page 19 © 2015 OnCourse Learning

PROPERTY CLASSIFICATIONS Tangible Property Rights to Physical Objects Intangible Property Rights to Non-Physical Things 5 Page 19 © 2015 OnCourse Learning

TYPES OF TANGIBLE PROPERTY Real Property Land and Everything Attached to It Personal Property Anything That is Movable All That is Not Real Property 6 Page 19 © 2015 OnCourse Learning

COMPONENTS OF REAL PROPERTY 1.The Land 2.Permanently Affixed Objects 3.Appurtenant Rights 4.That Which Is Immovable by Law These components define real property and real estate! See Figure Page 20 © 2015 OnCourse Learning

TESTS FOR A FIXTURE For an Appraisal or a Sale –which objects are included or excluded? 8 Page 22 © 2015 OnCourse Learning

REAL PROPERTY RIGHTS Fee Ownership The highest form of ownership in real property… Fee Fee Simple Fee Simple Absolute Estate 9 Page 24 © 2015 OnCourse Learning

THE BUNDLE OF RIGHTS Like a bundle of sticks, each represents a different portion of property rights: The right to occupy property The right to sell it The right to borrow against The right to exclude others from it The right to convey ownership by gift or inheritance 10 Page 25 © 2015 OnCourse Learning

PARTIAL INTERESTS Leased Fee Estate Leasehold Estate Life Estate and Remainder Estate Equity Interest (subject to a debt) Undivided Interest in Common Areas Easements and Others Defining the ownership rights to be valued is vital! 11 Page 25 © 2015 OnCourse Learning

CATERGORIES OF USE RESTRICTIONS Ownership rights can be limited or restricted… 12 Page 27 © 2015 OnCourse Learning Figure 2.3

GOVERNMENT RESTRICTIONS 13 Page 27 © 2015 OnCourse Learning

GOVERNMENT RESTRICTIONS Police Power Building and Safety General Welfare Community Planning, Zoning, etc. Eminent Domain Sovereign body taking back private property for public use and paying “just compensation” 14 Page 28 © 2015 OnCourse Learning

GOVERNMENT RESTRICTIONS Taxation Sovereign body may impose taxes as needed as long as they are fair Escheat The sovereign body will take back the title to the property if the owner dies or disappears and leaves no relatives or heirs 15 Page 28 © 2015 OnCourse Learning

PRIVATE RESTRICTIONS Condition, Covenants & Restrictions (CC&R’s) Use Restrictions (Recorded) View Easements Leases (Allow only a specified use) Mortgages (May limit uses) 16 Page 30 © 2015 OnCourse Learning

MARKET RESTRICTIONS Economic Influences Feasibility (What use is in demand / short supply) Pursue Rezone to Allow Another Use (Economic Incentive) Potential Uses and Value (p. 31) Consider all restrictions to identify how land can be used – vital to pricing and valuation 17 Page 30 © 2015 OnCourse Learning

2.3 PROPERTY DESCRIPTIONS Three Types of Legal Descriptions (p. 32) Recorded Lot, Block & Tract Metes and Bounds Government Survey Assessor’s Parcel No. (APN) ≠ Legal Description! 18 Page 31 © 2015 OnCourse Learning

RECORDED LOT, BLOCK & TRACT After Map is filed, all Legal Descriptions refer to the Recorded Map. Lot 3, Block 4 of Nottingham Forest, a subdivision recorded in Volume 138, Page 1 of the Map Records of Harris County, Texas 19 Page 32 © 2015 OnCourse Learning

SUBDIVISION MAP FIGURE 2.4 – An Example of Subdivision Map 20 Page 33 © 2015 OnCourse Learning

METES & BOUNDS (Early Example) Beginning at Joe’s barn (point of beginning), 100 paces toward the old hickory stump on the ridge, then toward widow Jones’ cabin for a bit, then past the old flour mill, then back to Joe’s Barn (close). 21 Page 33 © 2015 OnCourse Learning

METES & BOUNDS Call (Direction + Angle in Degrees) + Distance 22 Page 35 © 2015 OnCourse Learning Figure 2.6 An Example of an Irregular Parcel Map

GOVERNMENT SURVEY Bpt. 23 Page 35 © 2015 OnCourse Learning Meridian Line (North-South) Base Line (East-West) Figure 2.7 (p. 36)

GOVERNMENT SURVEY 24 Page 36 © 2015 OnCourse Learning Range Line (North-South) Township Line (East-West) Figure 2.8 (p. 37)

TOWNSHIP SHOWING SECTIONS 25 Page 37 © 2015 OnCourse Learning A Township is divided into 36 Sections Figure 2.9 (p. 38) Each Section is 1 mile Square = 640 Acres

APPLYING GOV’T SURVEY PRINCIPLES The W ½ of the NE ¼ of the NE ¼ of the Sec. 26 Page 38 © 2015 OnCourse Learning Hint: Read it backwards Figure 2.10 (p. 39) 1.Locate the parcel 2.Prove the Acreage

2.4 REAL ESTATE CONTRACTS A Contract is Defined as: An agreement between two or more persons which creates an obligation to do or not to do a particular act. Source: Black’s Law Dictionary, 6 th ed., West Publishing Co., St. Paul, 1990 Essential Elements of a Contract The Offer The Acceptance 27 Page 40 © 2015 OnCourse Learning

IMPORTANCE OF CONTRACTS Listing Contracts Sales Contracts Leases or Rental Agreements Financing Private Restrictions 28 Page 3 © 2015 OnCourse Learning

REQUIREMENTS OF VALID CONTRACT Competent Parties Subject – An Act to be performed Legal Consideration Mutual Obligation or Agreement “Meeting of the Minds” Obligation of Both Parties to Comply 29 Page 41 © 2015 OnCourse Learning

CHAPTER SUMMARY Real Estate vs. Real Property Real Estate = Physical Object Real Property = Rights of Ownership Personal Property and Tests to determine if it’s a Fixture (“MARIA”) Real Property Rights (Bundle of Rights) & Restrictions on those rights Three Types of Legal Descriptions Real Estate Contracts 30 Page 42 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS AcceptanceGovernment Restrictions AppurtenanceGovernment Survey Base LineIntangible Property Bundle of RightsLeased Fee Estate Competent PartiesLeasehold Estate ConsiderationLegal Description ContractLife Estate Dominant TenementMarket Restrictions EasementMetes and Bounds Description EquityMutual Obligation FixtureOffer 31 Page 43 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS Partial InterestsReal Property Personal PropertyRecorded Lot, Block and Tract Police PowerRecorded Map Power of Eminent DomainRemainder Estate Power of EscheatSections Power of TaxationServient Tenement Principle Meridian LineSubdivision Map Private RestrictionsTangible Property PropertyTownship Range LinesTownship Lines Real EstateTract Map Trade Fixtures 32 Page 44 © 2015 OnCourse Learning