Real Estate 101: Fixtures
What is a fixture? The answer to this question could matter if you are considering purchasing a home or if you expect to inherit real estate. This article explains what a fixture is, and why it matters.
First, why does it matter whether or not an item is classified as a "fixture"? Following are some examples of how misclassification could cost you money.
(1) Eminent Domain
If the government takes your property for public purposes, it is obliged to pay your just compensation. However, you will be compensated only for your real property, not your personal property. If it's going to cost you more than the item is worth to remove it from your real estate but the government nevertheless classifies it as personal property, you might as well leave it there and take the loss.
(2) Property Taxes
Real estate and personal property are taxed at different rates in many jurisdictions, and serious misclassification of your property can get you nailed for tax penalties or even tax evasion if it lowers your overall tax bill.
(3) Sale of Real Estate
If you sell your real estate using a real estate sales contract, the buyer gets your real estate but not your personal property. If you fail to clarify this in your contract, a dispute is likely.
Most mortgages cover real estate along with all "after acquired" real property. If you bolt down an expensive fixture and the bank later forecloses on your mortgage, the bank may assert that the fixture is after acquired real property and take it along with the house.
If your uncle leaves his real estate to his son, and leaves his personal property to you, all fixtures will go to his son.
So what exactly is a fixture? You probably own several. The formal definition of a fixture is â€œa tangible object that was once personal property but has become so connected with real property that it has become a part of it. An example of a fixture would be a commode - once it's been bolted to the floor of your bathroom, and not a moment before. By contrast, a desk is not a fixture no matter how heavy it is, simply because it is physically separate from your house.
Following are the factors that courts use to determine what is and is not a fixture.
(1) How firmly and securely the item is attached to the real estate.
(2) How appropriately the item fits as a fixture (you can't turn a refrigerator into a fixture by simply bolting it to the floor, for example).
(3) How much it will harm the real estate to remove the item (whether you will have to rip out a wall to remove it, for example).
(4) The intentions of the person who attached the item to the property. If an owner bolts a toilet onto the bathroom floor, it might be more convincing evidence that he intended it to become a permanent part of the real estate than if a renter did so.
You don't have to be an attorney to be able to identify an object that is probably a fixture. Just remember to make mental note of how your property is likely to be classified before entering into any transaction in which the classification is likely to matter.