How can encumbrances influence the value of a property?

Encumbrances can significantly influence property value, particularly in terms of limitations they impose on the property’s use. When a property has an encumbrance, such as a lien, easement, or restrictive covenant, it may restrict how the owner can utilize the property. For example, an easement might allow a neighbor to cross a portion of the property, reducing privacy and limiting development options. This limitation can be perceived negatively by potential buyers, leading to a decrease in demand and, consequently, a lower market value for the property.

By imposing restrictions on usage, encumbrances can create uncertainty for buyers regarding the property's full potential, making it less attractive compared to unencumbered properties. This is why the correct answer highlights that encumbrances can lower property value by limiting usage, thus affecting the overall desirability of the property in the market.