What is the Bundle of Rights in Real Estate?
There are so many incredible benefits and privileges that come with owning real estate - including access to the “bundle of rights.”
Many homeowners don’t realize that when they purchase a property, they also get the privilege of legal rights that give them the freedom to do with the property they want.
This bundle of five rights is key for homeowners and is heavily featured on the real estate exam.
As you prepare to take your licensing test, make sure you understand the bundle of rights and the value they bring.
What are the bundle of rights?
The bundle of rights is a legal set of rights associated with purchasing and owning a home.
These rights are awarded to the buyer of a property when the title is transferred to the owner and the sale of the home is finalized.
There are five rights included in the bundle:
- Right to use
- Right to possess
- Right to transfer
- Right to encumber
- Right to enjoy
How does the bundle of rights work?
Individuals who purchase a property are awarded a set of rights that outlines their legal privileges through ownership.
These rights allow the buyer to use the property however they wish, as long as no laws are broken in the process.
Each of these rights stands by itself, and some of the rights may be distributed to other parties depending on the type of homeownership.
For example, if you buy a home by obtaining a mortgage, the bank or lender will share some of your rights until the home is paid off. Or, if you use the home as an investment property, the renters might also share some of the rights.
However, these rights must ultimately be observed within the scope of other laws or legally binding agreements.
Each of these rights has some limitations and exceptions that can vary based on the type of ownership, the governing rules in the state, and how the homeowner seeks to use the property.
While these rights apply to both residential and commercial properties, in a commercial property, the rights are often shared between multiple parties.
Right to use
Sometimes called the right of control, the right to use gives the homeowner the ability to use the house as you see fit.
Whether you want to have guests over or potentially rent the property out, as the owner of the house, you are allowed to determine how you use the property and what activities are conducted within the walls of your home — as long as you’re not violating other laws.
This right can be dictated further by things like an HOA or zoning regulations that have a say over how you can use a property, so make sure you comply with those ordinances.
Right to possess
The right to possess is the simple right of ownership that comes with the transfer of the title.
You have the right to own and legally possess the property, which also means you can exclude or include people from your property.
You can prevent people from accessing or trespassing on your property, and you’re legally allowed to exclude people from your property if you wish.
A few exemptions to this rule would be a search warrant or a utility easement that’s in place on the property. In these cases, some of your rights to possess would be diminished.
Right to transfer
Sometimes called the right of disposition, the right to transfer says that you are able to transfer, sell, gift, or get rid of the property in whatever way you see fit.
The main caveat to this right is if you have a mortgage. In order to have the right to transfer or sell, you’ll have to pay off any remaining balances with the proceeds from the sale or out of pocket.
If you own the home outright, there are no restrictions on the property transfer.
Right to encumber
There are many different types of encumbrance when it comes to homeownership.
The right to encumber gives homeowners the right to do what they want or make improvements to the property.
This could include things like adding a pool to the property, changing the occupancy, renting the property out, and more. It allows you to use the home as collateral to earn profits or take money out against the property's value.
Some things like zoning laws or a mortgage on the property could restrict the right to encumbrance. It’s also required to let prospective buyers know about encumbrances on a property before they buy it.
Right to enjoy
There are so many wonderful joys to owning a home. And that right to enjoy your property is included in the bundle of rights!
Whether it’s the right to peace and quiet or to use the property as you see fit, there is a protected right to enjoy your property, just as long as you’re following other laws like noise ordinances.
Do these rights still hold up in an HOA?
If you live in a community with an HOA, you might have different rules to follow that could potentially supersede your bundle of rights.
When you purchased the property, you likely signed an agreement outlining the HOA rules and how you should follow them. These could impact your rights, but ultimately an HOA’s power can vary state by state.
What’s an easy way to remember the bundle of rights for the real estate exam?
This bundle of rights will likely be included in the real estate exam, so it’s important to understand each of their uses and descriptions.
One easy way to remember is the acronym UPTEE:
Remember this as you take the exam and are asked about the bundle of rights.
Final thoughts on the bundle of rights
When you buy a home, you get access to a specific set of rights, including the right to use, possess, transfer, encumber and enjoy your new home.
While these rights have some exceptions, it’s important for homeowners and prospective real estate agents alike to understand their values and limits.
TL;DR: The bundle of rights are a the rights a homeowner receives that grants them domain over their property. Put simply, it's what makes property ownership worth it.