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PROPERTY OWNERSHIP – buying a colonial home by a real estate investor

🏡 Property Ownership: What Every Real Estate Salesperson Needs to Know for the PSI Exam

Posted by Capital Real Estate School | PSI Exam Prep Series – Topic 1

If you’re studying for your real estate salesperson license exam, Property Ownership is one of the most important topics you’ll face. According to the PSI national exam content outline, this section makes up roughly 10% of your total exam score, so mastering it is a must.

The good news? Once you understand the key concepts, this topic is very manageable. In this post, we’ll walk through every major subtopic from the PSI outline, explain what each one means in plain English, and give you solid PSI Exam Tips to help you answer questions correctly on test day. Let’s dive in!

🔑 Section 1: Real vs. Personal Property — And What About Fixtures?

One of the first things you’ll need to master is the difference between real property and personal property.

• Land = Natural items only (trees, rocks, soil, water)
• Real estate = Land + man-made improvements (a house, garage, or fence)
• Real property = Real estate + the bundle of legal rights (the right to sell, lease, mortgage, or use the property)
• Personal property (also called chattel) = Movable items not permanently attached to land (furniture, a car, a portable microwave)

The tricky part comes with fixtures, items that started as personal property but got attached to the real estate and are now considered part of it. Think of a ceiling fan, built-in shelving, or a furnace.

📌 The MARIA Test for Fixtures

To determine whether something is a fixture, courts and the PSI exam use the MARIA test, five factors that help decide if personal property has become real property:

💡 PSI Exam Tip: The “Agreement of the Parties” (the last A in MARIA) is actually the most important factor. If both parties agree in writing on whether an item stays or goes, that agreement will almost always prevail. Always look for whether a contract specifies it!

Two other concepts to know here: Trade fixtures are items a business tenant installs for their trade (like a restaurant hood vent). These remain the tenant’s personal property and can be removed before the lease ends. Emblements are crops planted by a tenant, they’re considered personal property of the farmer, even after the land is sold.

🗺️ Section 2: Land Characteristics and Legal Descriptions

Physical and Economic Characteristics of Land

Before we talk about how to describe land, you need to understand what makes land unique. The PSI exam tests you on two groups of land characteristics:^[3]

Physical Characteristics (these never change):

• Immobility: You can’t pick up land and move it somewhere else
• Indestructibility: Land itself cannot be destroyed (even after a fire, the land is still there)
• Uniqueness (Non-homogeneity): No two parcels of land are exactly alike; every piece of property has its own location

Economic Characteristics (these affect value):

• Scarcity: There’s a limited supply of land, especially in desirable areas
• Improvements: Changes to or on the land (a road, a building) affect the value of the whole area
• Permanence of Investment: Real estate improvements are long-term; buildings last for decades
• Situs (Location): This is the big one! “Location, location, location”, where the property sits, drives its economic value

💡 PSI Exam Tip: Don’t confuse physical and economic characteristics. Immobility, indestructibility, and uniqueness are physical. Scarcity, improvements, permanence of investment, and situs are economic. The exam loves to test these categories!

Three Types of Legal Descriptions

A legal description is the official, court-recognized way to identify a property. A street address isn’t good enough for legal documents — you need one of these three methods:

1. Metes and Bounds: The oldest method. Starts at a “Point of Beginning” (POB) and traces the property’s boundary using directions (bearings) and distances. Uses monuments (physical markers) and benchmarks (elevation reference points). Common in older East Coast states.
2. Lot and Block (Recorded Plat): The most common method in suburban areas. The land is divided into a recorded plat map with numbered lots in named blocks. When you buy a home in a subdivision, this is usually the method used.
3. Rectangular (Government) Survey System: Used mainly in states west of the Ohio River. Land is divided into townships (6 miles × 6 miles = 36 square miles) and sections (1 square mile = 640 acres). A township has 36 sections, and sections are further divided into halves and quarters.

💡 PSI Exam Tip: Remember that 1 section = 1 square mile = 640 acres. If a question asks about a “quarter section,” that’s 160 acres. The exam will often give you a fraction of a section and ask how many acres it contains, always start from 640.

🏠 Section 3: Estates in Land and Forms of Ownership

An estate is the degree, nature, and extent of interest a person has in real property. The PSI exam divides estates into two main categories: freehold and leasehold.

Freehold Estates (Ownership Interests)

Freehold estates are ownership interests, you actually own the property. There are three main types:

💡 PSI Exam Tip: Fee simple absolute is the best type of ownership you can have, unlimited and unconditional. A life estate ends at someone’s death. Watch for the words “as long as,” “provided that,” or “upon condition that”, these signal a defeasible fee.

Leasehold Estates (Possession Without Ownership)

A leasehold estate gives a tenant the right to use property, but they don’t own it. There are four types:

• Estate for Years: A lease with a specific start and end date (even if it’s just 6 months). It ends automatically, no notice needed. Despite the name, it doesn’t have to last years.
• Periodic Tenancy: A lease that renews automatically (month-to-month or week-to-week). Either party must give proper notice to end it.
• Tenancy at Will: Either party can end the tenancy at any time, for any reason.
• Tenancy at Sufferance: The tenant has stayed past the lease expiration without permission. This is the lowest form of tenancy (sometimes called a “holdover tenant”).

Concurrent (Co-) Ownership

When two or more people own property together, that’s concurrent ownership. Here are the four types you need to know:

• Tenancy in Common: Each owner has a separate, divisible interest. Ownership shares can be unequal. There is no right of survivorship; each owner can pass their share to heirs.
• Joint Tenancy: Equal shares between owners, with right of survivorship (when one owner dies, their share passes automatically to the surviving owners). Requires the “Four Unities”: Time, Title, Interest, and Possession (TTIP).
• Tenancy by the Entirety: Available only to married couples in some states. Similar to joint tenancy, with right of survivorship, but neither spouse can sell their share without the other’s consent.
• Community Property: In 9 states (including California, Texas, and Arizona), property acquired during marriage is owned 50/50 by both spouses.

💡 PSI Exam Tip: The biggest distinction on the exam is between Tenancy in Common (NO right of survivorship, unequal shares OK) and Joint Tenancy (YES right of survivorship, MUST have equal shares). The word “survivorship” is your signal.

Common Interest Ownership

These are popular in today’s market and tested regularly on the PSI exam:

• Condominium: You own your individual unit plus a share of the common areas
• Cooperative (Co-op): You don’t own real property; instead, you buy stock in a corporation that owns the building, and your shares give you the right to lease a unit
• Planned Unit Development (PUD): You own your lot and home outright, plus shared common areas through a homeowners’ association (HOA)
• Time-Share: You purchase the right to use a property for a specific period each year

💡 PSI Exam Tip: The key difference between a condo and a co-op is what you own. Condo = real property. Co-op = personal property (shares of stock). This distinction shows up on the exam!

⛓️ Section 4: Encumbrances and Property Interests

An encumbrance is anything that affects the title or use of property but doesn’t necessarily prevent its transfer. Think of it as a burden on the property.

Liens: Financial Claims Against Property

A lien is a financial claim; it means someone is owed money, and the property is used as security. Liens come in two major categories:

Voluntary vs. Involuntary:

• Voluntary lien: The owner chose to create it (e.g., a mortgage)
• Involuntary lien: Created by law, without the owner’s consent (e.g., a tax lien)

Specific vs. General:

• Specific lien: Attached to one specific property (e.g., a mortgage, mechanic’s lien)
• General lien: Attached to all property the debtor owns (e.g., a judgment lien)

Common lien types to know for the PSI exam:

💡 PSI Exam Tip: Tax liens are given priority over most other liens, regardless of when they were recorded. Don’t assume it’s always “first recorded = first paid.”

Easements, Profits, and Licenses

An easement gives someone the right to use another’s property for a specific purpose — but not to own it.

• Easement Appurtenant: Benefits an adjacent property. It involves two parcels: the dominant tenement (the property that benefits) and the servient tenement (the property that is burdened). This easement “runs with the land”; it stays even when the property is sold.
• Easement in Gross: Benefits a person or company, not a neighboring property. A utility company’s right to run power lines across your property is a classic example.
• Profit: Similar to an easement but allows someone to remove something from the land (like timber or minerals).
• License: A personal, revocable permission to use property (like a ticket to a concert venue). A license is NOT an easement and can be taken away at any time.

💡 PSI Exam Tip: An easement appurtenant involves TWO properties. The dominant tenement benefits; the servient tenement serves. Remember: “Dominant” = Dominates (gets the benefit). “Servient” = “serves (carries the burden).”

Encroachments, Deed Restrictions, and CC&Rs

• Encroachment: When a structure (like a fence or shed) physically crosses the property line onto a neighbor’s land. You’d discover this from a survey.
• Deed Restrictions (CC&Rs): Private limitations placed in a deed. CC&Rs stands for Covenants, Conditions, and Restrictions, commonly used in subdivisions and HOAs.
  • A covenant is a promise to do or not do something (less severe, usually just money damages if violated)
  • A condition is more serious: violating it could cause the property to revert to the original owner

💡 PSI Exam Tip: If the exam asks what can happen when a deed condition is violated, the answer is that the grantor can reclaim the property. A deed covenant violation typically only results in a lawsuit for damages, not loss of property.

Water Rights

Water rights determine who has the legal right to use water on or near their property. There are three doctrines:

• Riparian Rights: Used in most eastern U.S. states (where water is plentiful). Property owners whose land borders a stream or river have the right to use that water reasonably.
• Littoral Rights: Similar to riparian rights, but apply to land bordering large navigable bodies of water (lakes, oceans, seas). The owner has rights to the shoreline but the government usually owns the water itself.
• Prior Appropriation: Used mainly in western U.S. states (where water is scarce). The right to use water belongs to whoever first put it to beneficial use, regardless of whether they own adjacent land. “First in time, first in right.”

💡 PSI Exam Tip: The exam may ask which water rights doctrine applies in a specific region. East = Riparian. West = Prior Appropriation. Shoreline/ocean/lake = Littoral.

🏛️ Section 5: Public and Private Land Use Controls

So far, we’ve talked about how you can own property and what kinds of interests and encumbrances can be attached to it. But here’s something equally important: even after you own real property, the government and private parties can still control how you use it. This section covers the rules, regulations, and tools that limit what owners can do with their land.

This is a hot area on the PSI exam, so pay close attention!

⚖️ Police Power: The Government’s Right to Regulate Land

The term police power doesn’t just mean law enforcement — in real estate, it refers to the government’s broad authority to create laws that protect public health, safety, morals, and general welfare. Police power is one of the most important concepts in land use law.^[1]

The government exercises police power through four main tools, easy to remember with the acronym PETE:

💡 PSI Exam Tip: Police power does NOT require the government to pay compensation to the property owner. Eminent domain DOES require “just compensation.” This is one of the most commonly tested distinctions on the PSI exam. If the government regulates your property through zoning, that’s police power, no payment required. If they take your property, that’s eminent domain; they must pay.

Three of the most common exercises of police power are the following:

🏗️ Zoning

Zoning is a local government tool that divides a community into specific zones or districts and sets rules for how land in each zone can be used. Zoning protects neighborhoods by making sure a factory can’t be built next to a school, or a nightclub can’t open up in a quiet residential area.

Common zoning classifications include:

💡 PSI Exam Tip: Zoning is a function of local government (cities, towns, counties), not federal or state government. Always remember: zoning is local.

🔨 Building Codes

Building codes are minimum construction standards set by local governments to ensure that buildings are safe for people to occupy. They cover things like electrical wiring, plumbing, structural integrity, fire safety, and accessibility. Before you can build or make major renovations, you’ll typically need a building permit, and inspections will happen throughout the project.

💡 PSI Exam Tip: Building codes are another exercise of police power. They protect public safety and are enforced through the permit and inspection process. A seller who made unpermitted improvements could face issues at closing.

🏘️ Subdivision Regulations

When a developer wants to divide a large piece of land into multiple lots for sale, they must follow subdivision regulations — rules set by local governments that govern how land is divided. These regulations typically require the developer to submit a plat map for approval and may also require the developer to install roads, utilities, and drainage systems before homes are built.

🗂️ Zoning Classifications, Nonconforming Uses, Variances & Special Permits

Zoning sounds simple, but in practice, strict zoning rules can create several serious situations that become complicated. The PSI exam loves to test these edge cases!

🔄 Nonconforming Uses

A nonconforming use is a property use that was legal when it started, but then a new zoning law was passed that made that use no longer permitted in that zone. Because the use existed before the law, the owner is typically allowed to continue, but only under specific conditions.

Key rules to know:

• The nonconforming use generally cannot be expanded
• If the building is destroyed by more than a certain percentage, the owner may not be allowed to rebuild it as a nonconforming use.
• Over time, governments may try to phase out nonconforming uses through a process called “amortization.”

💡 PSI Exam Tip: A nonconforming use is also called a “legal nonconforming use” because it was legal before the zoning change. Don’t confuse it with an illegal use, which was never permitted at all.

📋 Variances

A variance is an official permission to deviate from the current zoning rules for a specific property. If a homeowner wants to build a garage that’s slightly closer to the property line than zoning allows, they can apply to the local zoning board for a variance.

There are two types:

• Use variance: Permission to use land for a purpose not normally permitted in that zone (harder to get)
• Area (bulk) variance: Permission to build outside the normal size, height, or setback requirements (more commonly granted)

💡 PSI Exam Tip: Variances are granted by the Board of Zoning Appeals (BZA) or a similar local board, NOT the legislature. The property owner must show that enforcing the zoning rule would cause unnecessary hardship.

📄 Conditional Use / Special Use Permits

A conditional use permit (CUP), sometimes called a special use permit, allows a use that isn’t normally permitted in a zone, but could be allowed under specific conditions. For example, a daycare center might need a CUP to operate in a residential zone because it serves the community but brings extra traffic.

The difference between a variance and a CUP:

• A variance says: “This property can break the rule.”
• A CUP says: “This use is allowed, but only if certain conditions are met.”

🌱 Environmental and Growth Controls, Master Plans & Comprehensive Plans

Beyond basic zoning, governments also use bigger-picture planning tools to guide how entire communities grow and develop over time.

🗺️ Master Plans and Comprehensive Plans

A comprehensive plan (also called a master plan or general plan) is a long-range policy document that a local government creates to guide future land use, transportation, housing, and economic development across an entire city or county. It’s not a law itself — but zoning decisions are supposed to be consistent with the comprehensive plan.

Think of it this way:

• The comprehensive plan is the vision, where the community wants to go over the next 20~30 years
• Zoning ordinances are the tools, the actual regulations that implement the vision one parcel at a time

💡 PSI Exam Tip: The comprehensive plan is a guide, not a law. Zoning implements the comprehensive plan, but the plan itself doesn’t directly restrict individual property owners. The exam may test whether you understand this distinction.

🌿 Environmental and Growth Controls

Governments also use land-use controls to protect the environment and manage how quickly a community grows. These tools include:

• Environmental Impact Reports (EIR): Required before large developments are approved; studies how the project will affect air, water, wildlife, and traffic
• Wetlands regulations: Federal and state laws that restrict development on wetland areas (swamps, marshes, floodplains) to protect natural ecosystems
• Floodplain regulations: Properties in FEMA-designated flood zones face special building restrictions and mandatory flood insurance requirements
• Growth management laws: Some states and cities limit how fast they can grow by capping new building permits, requiring new development to pay for infrastructure improvements, or designating urban growth boundaries
• Eminent Domain / Condemnation: When the government acquires private land for public use (roads, schools, parks), it must pay the owner just compensation. The legal process of taking the property is called condemnation.

💡 PSI Exam Tip: You may see the term “inverse condemnation” on the exam. This is when the government effectively reduces a property’s value through regulation or nearby public projects (such as building a noisy highway next to a neighborhood), and the owner sues for compensation. The government didn’t formally take the land, but the owner suffered a loss.

🏠 Private Land Use Controls

It’s not only the government that can control how land is used. Private parties, like sellers, developers, and homeowners’ associations, can also place restrictions on land through legal agreements recorded in deeds or other documents.

The most common forms of private land use control you’ll need to know are:

• Deed Restrictions: Limitations placed directly in the deed that “run with the land” (they stay with the property even when it changes hands). Examples include minimum home size, exterior color restrictions, or prohibitions on commercial use.
• CC&Rs (Covenants, Conditions & Restrictions): A common set of rules used in planned communities and HOAs. They govern everything from fence heights to whether you can park a boat in your driveway.
• Homeowners’ Associations (HOAs): Private organizations that enforce CC&Rs and manage common areas in a subdivision, condo complex, or PUD. HOA dues are often a lien on the property if unpaid.

💡 PSI Exam Tip: Deed restrictions are private controls (created by individuals). Zoning is a public control (created by the government). Both can apply to the same property at the same time — and the more restrictive rule typically governs. If zoning says you can build a 35-foot fence but the CC&Rs say no fence over 6 feet, you’re limited to 6 feet.

📝 PSI Exam Tip Recap: Public & Private Land Use Controls

Land use controls are everywhere in real estate — from the zoning map at city hall to the CC&Rs in a subdivision’s master deed. Understanding who controls what and what remedies are available will help you answer these questions confidently on your PSI exam.

📝 Final PSI Exam Tips for Property Ownership

Here’s a quick cheat-sheet recap of the most important things to remember heading into your exam:

• ✅ MARIA = the 5 fixture tests (Method, Adaptability, Relationship, Intention, Agreement)
• ✅ 1 section = 640 acres; a township has 36 sections
• ✅ Fee simple absolute = the best and most complete ownership
• ✅ Joint tenancy = equal shares + right of survivorship (look for “Four Unities”)
• ✅ Tenancy in Common = unequal shares OK + NO right of survivorship
• ✅ Condo = own real property; Co-op = own stock (personal property)
• ✅ Dominant tenement benefits; servient tenement serves
• ✅ Tax liens = top priority, regardless of recording date
• ✅ Riparian = East, Prior Appropriation = West, Littoral = shoreline/navigable waters
• ✅ Condition in a deed = could lose the property; covenant = usually just damages

Property ownership is one of those topics that feels overwhelming at first but makes total sense once you see how the pieces fit together. Study each subtopic carefully, practice sample questions, and you’ll be well on your way to passing your PSI exam with confidence!

Good luck on your exam! Be sure to check out our other PSI Exam Prep posts on Agency, Contracts, Finance, Valuation and more.