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

Equity in real estate refers to the difference between the market value of a property and the amount owed on any existing mortgage or loans secured by that property. This means that if a property is valued at a certain amount and the owner has an outstanding mortgage that is less than this value, the homeowner has a stake in the property that represents their equity.

For example, if a property is worth $300,000 and the owner has a mortgage balance of $200,000, the equity in the property would be $100,000. This measure is important for homeowners and investors, as it represents their investment in the property that can be realized upon sale or refinancing. Recognizing this concept is crucial for making informed decisions regarding property transactions, investment strategies, and financial planning.

Other definitions, such as total cash received from selling a property, property tax increases over time, or total debt owed, do not capture the essence of what equity represents in real estate. These aspects focus on different financial considerations and do not reflect the net worth of the property owner in relation to their invested value in the property.