How does an encumbrance typically affect a property's marketability?

An encumbrance typically complicates transfers and may lower buyer interest because it represents a claim or liability attached to the property that could affect ownership rights. Encumbrances can include things like mortgages, liens, easements, and restrictive covenants. These claims can impose restrictions on how the property is used or can create financial obligations that need to be settled before the property can be sold free and clear. Buyers often hesitate to purchase properties with existing encumbrances due to potential complications in the transaction process or concerns about the future implications of those encumbrances.

For example, a property with a lien for unpaid taxes can deter prospective buyers because they would have to address this lien before gaining full ownership. Similarly, an easement that grants someone else the right to use a portion of the property may lessen its attractiveness or market value to a potential buyer who desires full control over the property. Thus, the presence of an encumbrance can limit marketability by introducing complexities and uncertainties that potential buyers typically want to avoid.