PSI Oklahoma Real Estate Practice Test

What is defined as any interest in or right to land by third persons that adversely affects the property's value?

1. Liability

2. Encumbrance

3. Leasehold interest

4. Tenancy

The correct answer is: Encumbrance

An encumbrance refers to any interest or right in a property that may diminish the property's value or restrict its use. This can include a wide variety of claims against the property, such as liens, easements, or restrictions from zoning laws. The critical aspect of an encumbrance is that it can have a negative impact on how a property can be used or what it is worth in the market. For instance, if a property has a mortgage, that mortgage is an encumbrance because it represents a claim that must be satisfied when the property is sold, thereby affecting the owner's equity. Similarly, if there is a permanent easement allowing a neighbor to pass through the property, this could limit the property owner’s ability to use their land freely, hence potentially lowering its value. In contrast, liability refers more to the legal responsibilities one may have, and while it can indirectly affect property value, it does not directly represent a right or interest related to the land itself. Leasehold interest relates specifically to the rights of tenants under a lease agreement, which does not inherently adversely affect the property’s value in the same way as an encumbrance. Tenancy refers to the state of renting property and does not encompass the broader range of rights and