During this peak home sales season, when thousands of houses and condominiums will be sold, buyers and sellers need to be aware of what is legally included and excluded from their sale.

Most experienced real estate agents have horror stories about “fixtures,” which the seller removed but the buyer thought were included in the sale.

To illustrate, my mother was a mild-mannered woman. Only once did I ever hear her raise her voice. I was helping mom and dad move into their condominium. As I walked down the hallway to the condo carrying some boxes, I heard her scream as she entered the condo, “Where is the chandelier?”

The seller had removed the dining room chandelier. Even my dad was surprised.

Fortunately, a phone call to the real estate agent resolved the problem, the seller sheepishly restored the chandelier, and everyone lived happily ever after.

That typical example shows how important fixtures can be in a home sale.

THE SIMPLE REAL ESTATE LAW OF FIXTURES. Most home buyers and sellers, and even their real estate agents, often do not understand the simple law of fixtures.

A “fixture” is moveable personal property, which, by means of bolts, nails, screws, cement, glue, or other attachment method, has been converted to real property. Clearly, that dining room chandelier had been converted from personal property to real property because of its permanent attachment to the structure. Nothing was said in the sales contract about its exclusion from the condo sale.

A more troublesome example can be window coverings. Suppose a house or condo has beautiful draperies and attached wood window blinds. Those draperies hang by hooks from a drapery rod that is screwed into the wall.

The law of fixtures says the draperies are personal property because they can be easily removed without damage, but the drapery rods are fixtures included in the home sale. The wood window blinds, if permanently attached to the structure, are considered fixtures, which are included in the home sale.

But the printed sales contract can change the result. Most well-written home sales contract forms specify “window coverings” are included in the sales price (unless otherwise excluded).

REMOVE IT IF YOU DON’T WANT IT INCLUDED IN THE SALE. As longtime real estate agents know, the worst thing a home seller can do is hang a sign on a fixture stating the seller wants to exclude it from the sale.

Having bought many rental houses, I recall seeing little signs hanging from the dining room chandelier, or pasted on the front of the dishwasher, saying, “This item not included.”

That is like waving a red flag in front of a bull. Unless the item is junk, the buyer will then insist on receiving that fixture as part of the home-purchase price.

A better approach for home sellers is to remove the item before exposing the house or condo to prospective buyers. Removing the dining room chandelier and installing a tasteful replacement is far better.

For example, last year I recall inspecting an $18 million estate where the seller had removed the built-in kitchen appliances. Frankly, I thought that was “tacky.” But I was not a serious buyer so I didn’t bring up the issue with the listing agent.

MY FAVORITE FIXTURE STORY. Years ago, in the small town where I live, a large house was listed for sale. One of its primary features was the beautiful rose garden.

After the house sale closed and the buyer obtained title, image the buyer’s shock to discover the seller had removed all the beautiful rose plants. That seller obviously understood the law of fixtures.

Plants and trees growing in the ground are considered to be fixtures because they are permanently attached to the land by roots. However, because the rose plants were in large pots, the seller was legally entitled to remove them since they were not permanently attached to the real property.

AVOID FIXTURE TROUBLE WITH A WELL-WRITTEN SALES CONTRACT. When a home buyer spots non-fixture items, such as patio furniture, which the buyer wants included in the home sales price, the buyer must itemize that personal property in the sales contract to have it included in the sales price.

Similarly, if the seller wants to exclude any fixtures that are attached to the structure, those items must be itemized in the written contract otherwise they are automatically included in the sale.

Troublesome items to consider include: track lighting, fireplace inserts and equipment, solar systems, built-in appliances, screens, awnings, shutters, window coverings, attached floor coverings, TV antennas, satellite dishes and related equipment, telephone and Internet wiring, window air conditioners, pool-spa equipment, water softeners, security systems, keys to all locks, garage door openers and remote controls, mailbox, and landscaping equipment.

FIVE LEGAL RULES IF A FIXTURE DISPUTE GOES TO COURT. If a lawsuit develops over an item that the buyer thought was an included fixture, but the seller removed, five basic legal rules generally apply:

1. METHOD OF ATTACHMENT. The most important fixture rule is the method of attachment. If the item is permanently attached to the structure, it is legally considered to be a fixture, which is included in the home’s sales price.

However, if an item can be removed without damage to the structure, such as draperies, it is not a fixture. Examples include unscrewing light bulbs and unplugging a refrigerator because both are personal property not permanently attached to the building.

The item’s weight is immaterial. To illustrate, an aboveground swimming pool is removable personal property unless it is surrounded by a permanent structure, thus making it a real property fixture.

2. INTENT OF THE BUYER AND SELLER. If the written sales contract is indefinite, in a court trial the intent of the buyer and seller become pivotal.

For example, when the multiple listing service (MLS) listing specifies a “beautiful kitchen with the latest appliances,” that implies the seller intends to include those appliances and the buyer can rely on that statement. Or a description of the beautiful swimming pool can be interpreted to mean the seller plans to include the pool cover and equipment.

3. ADAPTABILITY TO PROPERTY USE. When personal property is built into a home, it indicates it has become a fixture, which is included in the sales price.

To illustrate, when I bought my home there were built-in stereo speakers on each side of the den fireplace. Although nothing was said in the sales contract, I would have been very upset if the sellers removed those speakers. However, they did unplug their stereo equipment and I had to buy new stereo components.

4. AGREEMENT OF THE PARTIES. A written contract that lists a specific item, whether it is a fixture or personal property, usually prevails to make it included in the sales price. If in doubt, buyers should list any questionable items.

5. RELATIONSHIP OF THE PARTIES. As a general rule, if a lawsuit develops, courts tend to favor a) buyer over seller, b) tenant over landlord, and c) lender over borrower.

TRADE FIXTURES ARE AN EXCEPTION. The fixture rules explained above apply to residential sales. However, when a commercial business property is sold, the business tenant is entitled to remove business trade fixtures.

Examples include restaurant equipment, outdoor business signs, display cabinets, a bank vault, and a tavern bar. However, the business seller or tenant must restore the premises to its pre-lease or pre-sale condition.

If you want to make money buying, fixing and selling homes and know which properties to avoid — such as houses in excellent condition, houses needing major repair work (called scrapers or tear-downs), townhouses and condominiums — there are a few profitable types of principal residences where you can earn up to $250,000 (or $500,000) tax-free every 24 months.

The generally accepted definition of a potentially profitable fixer-upper house is a sound, well-located residence that can be bought for at least 25 percent below recent sales prices of comparable nearby homes in excellent condition. In other words, the profitable fixer houses need just cosmetic fix-up, which will add market value.

Of course, not all cosmetic improvements will meet this criterion. To illustrate, I’ve bought many fixer-upper houses that needed new roofs. A new roof doesn’t add market value, but it is obviously essential if the old roof is worn and leaking or about to leak.

LOCATION. In addition to being a basically sound house in need of profitable cosmetic fix-up work, the residence should be located in a decent neighborhood, particularly one that is not a “war zone” slum or a high-crime neighborhood. You will be living in this home, so the area should be one where you feel safe and won’t mind living.

The most profitable fixer-upper houses I’ve owned are in what I call working-class neighborhoods. Although it’s possible to increase the market value of expensive, luxury homes by making profitable improvements, my experience has been that the best profit opportunities are in middle-class neighborhoods or in areas that are definitely improving. When you’re ready to sell in a few years and claim your tax-free profits up to $250,000 (or $500,000), the buyer demand will usually be best in affordable middle-class neighborhoods.

GOOD SCHOOLS. Even if you don’t have school-age children, your future buyers probably will have children, so be sure to investigate the school quality. Profitable fixer-upper homes don’t have to be in top-quality school districts, but it sure helps unless there are compensating factors. To illustrate, where I live in California the public schools are ranked 1 to 10, with 10 being the best. Unfortunately, many public schools in Oakland, Los Angeles and San Francisco rank very low. But several of those neighborhoods have other compensating factors, such as high populations without children. Or, if you want to raise your children in a city with bad schools, plan on sending them to private schools for a quality education.

LOW CRIME RATES. No matter how nice a house is, if it is in a high-crime area the market value will be held down. You probably won’t want to live there so don’t waste time even looking at homes for sale in high-crime neighborhoods.

HOW TO AVOID POTENTIAL FIXER-UPPER PITFALLS. Although it sounds exciting to earn up to $250,000 (or more) tax-free every 24 months by fixing up houses, there is a potential disadvantage — you must live in the house as your primary residence for at least 24 of the 60 months before its sale. Since you have to live someplace, that doesn’t sound so bad.

However, unless you’ve lived in a house undergoing renovation, you don’t know how inconvenient that can be, especially if you have a spouse and children. To illustrate, I still recall when my neighbors remodeled their house. They wisely spent the summer in Europe while their house was being renovated, but most of us can’t afford to do that.

My suggestion is to get the major fix-up work completed before moving in. It’s much easier for painters, carpet installers and other workers to get their jobs completed in a vacant house. Although it might take a month or two for completion of cosmetic fix-up work, it’s best to get this work completed before you begin your 24-month occupancy period. Then you will be able to enjoy your freshly upgraded house. Of course, outside work such as new landscaping and exterior painting can be completed while you’re living in the house.

I have been shopping online for a 30-year fixed-rate mortgage. All the sites ask you how much you want to put down, and all offer different combinations of interest rate and points. I have cash of only $15,000 to apply to either down payment or points on my $500,000 purchase, but obviously I can’t use it for both. Where do I get the biggest bang for my buck?

Using your cash to pay points lowers the interest rate. (Points are upfront payments expressed as a percent of the loan). Using your cash for down payment reduces the amount you must borrow, and might or might not reduce the rate on the second mortgage if there is one, or reduce the mortgage insurance premium if there isn’t.

Which use of cash generates the lowest cost? There is no general answer to the question; every case is different. To answer the question in individual situations, Chuck Freedenberg and I developed a calculator that shows the total cost of any allocation of cash, over any time period specified by the user.
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Cost includes upfront payments and monthly payments, plus the interest lost on those payments at the rate specified by the user. (This is sometimes called an “interest opportunity cost” because it refers to the return you could have earned on the cash used to make upfront or monthly payments.) Deducted from these costs are the tax savings at the user’s tax rate, and the reduction in the loan balances.

To use your case as an illustration, I shopped a 30-year fixed-rate mortgage on www.Amerisave.com, which is one of the sites that offer many rate/point combinations. I assumed you were purchasing a single-family home as your permanent residence, have good credit, can fully document your income and assets, are in the 27 percent tax bracket, and have an interest opportunity cost of 5 percent.

On the day I shopped, using your $15,000 for down payment would have resulted in a first mortgage of $400,000 at 7.375 percent and a second mortgage of $85,000 at 7.75 percent. If instead, the $15,000 had been used to pay points, the rate on the first mortgage would drop to 6.375 percent, and while the second mortgage rate would remain at 7.75 percent, the amount of the second would increase to $100,000.

The period you expect to have the mortgages is a critical factor. In general, the longer you have the mortgages, the stronger the case for paying points, since the savings from the lower interest rate accumulate month by month while repayment of the larger balance on the second mortgage is deferred.

I used the calculator to assess your deal over two, five and 10 years. Over two years, paying points was a big loser. Over five years, however, paying points provided modest cost savings, and over 10 years the savings were very large.

I wondered whether the results would be the same for a borrower with $25,000 to use in the deal, who was otherwise the same. If this borrower used the $25,000 for down payment, he would pay 7.125 percent on the first mortgage of $400,000, and 7.25 percent on the second of $75,000. If he selected the lowest-rate/highest-point combination available, which would leave him with $5,000 for down payment, his rate on the first mortgage would drop to 6.125 percent, but his rate on the second (now for $95,000) would increase to 7.75 percent. Paying points would be a loser in this case over two years and over five years, with only moderate savings over 10 years.

The finding that the borrower with less cash does better allocating it to points than the borrower with more cash seems to be counterintuitive. The reason it works that way is that the borrower with less cash is already paying the maximum rate on the second mortgage, while paying points drops the rate on the first mortgage.

I strongly advise borrowers not to rely on any such generalizations, however, and to use the calculator to assess their own individual situation. It accommodates mortgage insurance as well as piggyback second mortgages. Don’t allow yourself to be shoehorned into a deal that may not be in your best interest without checking it out.