What is "equity" in real estate?

Equity in real estate refers to the ownership value that an individual holds in a property after subtracting any outstanding liabilities, such as mortgages or liens. This concept is fundamentally important in real estate as it reflects the true financial stake a homeowner has. For example, if a property is valued at $300,000 and the owner has a mortgage of $200,000, the equity would be $100,000.

This ownership perspective is crucial for homebuyers and investors, as it indicates the net worth tied to the property and can serve as a means of leveraging future investments or financing options. Understanding how equity builds over time as property values increase or as mortgage balances decrease is vital for making informed decisions in real estate transactions.

Other options like the total value of all assets owned, the amount of money borrowed for a property, or the value of the property based on market trends do not accurately capture the essence of equity, which is specifically concerned with ownership value net of debts.