What does the term "encumbrance" refer to in real estate?

The term "encumbrance" in real estate refers to a legal right or interest in the property that may affect the property's title and value. This can include various claims, liens, easements, or restrictions on the property imposed by a party other than the owner. Encumbrances may encumber the property, meaning they can limit the owner's rights or obligations in relation to the property.

For instance, a mortgage is a type of encumbrance where the lender has a legal interest in the property until the loan is paid off. Similarly, an easement allows another party to use part of the property for a specific purpose. Understanding encumbrances is vital for potential buyers or investors as they can impact the transaction, ownership rights, and overall investment in the property.

The other options do not accurately define what an encumbrance is. Title insurance coverage pertains to protecting against potential title disputes but doesn't define encumbrances themselves. A method of property evaluation does not relate to the rights or interests affecting ownership. The physical structure of the property is separate and distinct from any legal claims or rights attached to the property.