What is a chattel?
- A personal possession or tangible, moveable, personal asset.
- Etymologically speaking, chattel comes from French word “chatel” derived from Latin meaning “property or goods.”
- These properties are not attached to any foundations, unlike real properties and fixtures.
- Generally, a chattel property is accounted for differently because its value rapidly depreciates. Its price will not also increase when improvements are installed.
- A chattel can also be used as collateral for loans. It’s called “chattel mortgage.”
Chattel vs. Real Property vs. Fixtures
It’s important for investors to understand the differences between real property (including fixtures) and chattel. Real properties are stationary, tangible possessions. Examples include land, houses, buildings and condominium units. Fixtures are improvements attached to real properties. For instance, kitchen sinks, furnaces, chimneys, and electrical wiring are considered fixtures.
Building materials like bricks and mortar also fall under fixtures as long as they are literally affixed. However, vendors and customers often come into disagreements about which is a fixture and a chattel due to objects that cannot be easily removed like toilet seats, bathtubs, and cabinets. Do you think the bank will like to have your toilet seat as collateral for your smartphone? You will be surprised if you asked (hint: banks may consider it as mortgageable).
The slim line of difference between chattels and fixtures blurs further in appliances. Refrigerators, air conditioners, televisions, components, and others conveniently-removed electronics are chattels. However, built-in ovens, garden sheds, and production line machinery are fixtures. In case if a dealer comes across an argument with a buyer/seller, one should make it sure that the property can be removed without any noticeable damage.
If the property is still functional after extraction, then it is a chattel. Otherwise, it is a fixture. For example, a washing machine is a fixture is attached to a permanent plumbing and wiring system. But, if the technology allows expedient removal, the washing machine is a chattel. Resolving this kind of predicament determines how easy it is to sell the property.
Chattel Time Factor
In the financial world, chattels differ in taxation and value assessment because over time it decreases in price, mainly due to wear and tear. The latest flagship of a smartphone, for instance, is sold for a hefty price. Then, if a new smartphone model comes around in the next year, the price of the previous one drops.
Improvements and installments of a chattel are immaterial to the price. A seller cannot charge for the amount he/she spent for the paint job of his/her 5-year-old vehicle. Decorations (e.g., colored car lights) do not matter much either. Potential buyers have different preferences in enhancements.
The only time the value of a chattel appreciates with age is within the context of antiquity and rarity. Old furniture made of high-quality wood becomes more expensive after 50 years, which makes them valuable for asset value appreciation. Vintage shops and museums regard antiques as high worth items. They are part of the material culture of a distant past. Unique and rare items can come with an expensive price tag in the collecting world. Collectible items like 1st-edition Pokemon trading cards can be sold up to $100,000 after 15 years. However, not all trendy items fluctuate their price to a jackpot-level scale. Market forces remain unpredictable. People may love your Pokemon cards, but the banks may be looking for a different set.
What about chattel mortgages?
Like real estate properties, some chattels can serve as collateral for loans. The chattels that are recommended for collateral use are often big, movable things like cars, ships, and airplanes. Big companies usually engage in these kinds of transactions to protect corporate interests. Mortgages may help them earn more profit through investments. Chattel mortgages are not restricted to private individuals. It is important to note though that the viability of the loan depends on the value of the chattel and the degree of trust of a lender.
Awareness of the dynamics of chattels offers an immense advantage in financial assessment. At least, you can be prepared to use your toilet seat as part of a mortgage. How’s that for having a practical throne?