Personal Property

What is 'Personal Property'

Personal property, in its most general definition, can include any asset other than real estate. The distinguishing factor between personal property and real estate is that personal property is movable; that is, the asset is not fixed permanently to one location as with real property, such as land or buildings. Examples of personal property include vehicles, furniture, boats and collectibles.

BREAKING DOWN 'Personal Property'

Personal property is also known as movable property, movables and chattels.

Under common law systems, it is possible to place a mortgage upon real property. Because the lender has rights to the property it makes the extension of credit relatively safe and easy. After all, it's tough to flee the country with your house. On the other hand, it's tougher for a creditor to secure personal property. While common law systems allow liens to be placed on personal property (such as vehicles) to protect the rights of creditors, there is obviously much more risk that the debtor simply drives away with the collateral if he is fleeing the country.

Assets and Liabilities

Personal property is viewed as an asset. When applying for mortgages or other loans, most lenders ask borrowers to list personal property values on a financial statement. This snapshot gives prospective creditors a proper measure of personal net worth and how firmly a credit applicant is positioned to repay debt. Individuals seeking the extension of credit are asked to assess the fair market value of personal property. Fair market value reflects the price a reasonable buyer is willing to pay for a particular item.

Some personal property assets, such as furniture, clothing and automobiles, tend to depreciate. Other movable assets, such as collectibles and antiques, often appreciate in value. When assessing creditworthiness, lenders consider the total value of personal property added to real property and financial assets. The total assets are weighed against what an applicant owes to determine risk assumed by the lender in extending credit.

Personal Property and Home Insurance

Homeowners insurance offers three main components: dwelling value, personal liability and personal property value. Policyholders are required to determine the value of all personal property subject to perils. Most homeowners policies ascribe a value to personal property as a percentage of dwelling value. A $200,000 reconstruction value on a home may programmatically extend a 70% value, or $140,000, on personal property. The insured can choose between two options: replacement value of personal property or actual cash value. In the event of a covered claim, an insurance carrier indemnifies the policyholder for replacement of depreciated property with new property or accept the depreciated value of personal property in exchange for a lower premium.

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