What does "equity" refer to in real estate?

Equity in real estate represents the difference between a property's market value and the outstanding amount owed on any mortgage or liens. This means that equity reflects the ownership stake an individual has in the property. For example, if a property is valued at $300,000 and there is a mortgage balance of $200,000, the homeowner has $100,000 in equity.

This concept is critical for homeowners as it can influence their ability to refinance, sell the property, or take out home equity loans. Understanding equity is essential for making informed financial decisions regarding property ownership and investment. Other choices, while related to real estate, do not accurately define equity. For instance, the amount a seller profits from a sale relates more to capital gains, the total value of a property without liabilities gives an incomplete picture, and the loan amount simply refers to debt obligation rather than ownership value.