Illinois Real Estate Practice Exam

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

1. A fee paid to a real estate agent

2. A restriction or claim on the property by another party

3. A type of property insurance

4. A written agreement between two parties

The correct answer is: A restriction or claim on the property by another party

The term "encumbrance" in real estate refers specifically to a restriction, claim, or liability attached to a property, which can affect the property's value or the owner's ability to enjoy or transfer it. This may include things like liens, mortgages, easements, and other legal or financial obligations that can limit or detract from the ownership rights associated with the property. Understanding encumbrances is crucial for buyers, sellers, and real estate professionals because they can influence transactional decisions, property use, and financing. For instance, if a property has a mortgage (a type of encumbrance), the owner cannot sell the property without addressing that mortgage first, sometimes requiring the buyer to assume the mortgage or pay it off. The other options describe different concepts that are not related to the definition of encumbrance. For example, a fee paid to a real estate agent does not impose a claim on the property but rather relates to compensation for services rendered. Property insurance is meant to protect against specific risks rather than serve as a claim or restriction. A written agreement between two parties is a contract, which is a separate legal concept from an encumbrance.