First a legal definition:
Marketable title (real estate) is a title that considers to be free from defect. Marketable title does not assume the absolute absence of defect, but rather a title that a prudent, educated buyer in the reasonable course of business would accept.
So from the legal world when it comes to property and title, this means the property essentially doesn’t have any current legal issues. For example: unknown liens, forgeries, boundary or survey disputes, etc.
Your real estate lawyer is responsible to review and ensure good, marketable title at closing. Title insurance is often required or highly encouraged to assist homeowners in the event of an issue later down the road of home ownership.
Now let’s move on to the Marketability of a property:
To start, an example:
You’ve found a perfect home, one that’s definitely aesthetically out-dated but has good bones (solid foundation, newer roof, updated electrical). The marketability of this home is okay with the lenders because out-dated floors, kitchen and bathrooms don’t pose a safety issue and frankly there remains plenty of purchasers available for cosmetically out dated homes in today’s market. See “purchase plus improvements” article to address how to finance in cosmetic home improvements in the mortgage.
What would NOT be okay with lenders is if the home has perceived MAJOR issues such as a poor foundation, moisture problems, no working heat source, leaky roof, asbestos materials present, electrical issues, and or ‘insulbrick’ siding. Realtor home listing descriptions that include terms or words such as, “Needs TLC, Handyman Special, and Selling AS-IS” will likely be scrutinized and open the door to lenders asking questions on the current condition of the home. They may ask if there is an available home inspection to review. Any single or combination of these issues will lead to the lenders suggestion of low marketability of the property due to safety concerns and they will have to be addressed or decline the property from a mortgage approval all together.
When shopping for a house and you want to make sure it is good and marketable from a lenders perspective, try to avoid the major issues and hire a reputable lawyer to review the title! You will thank yourself later.