What is the definition of equity in real estate?

In real estate, equity refers to the difference between the market value of the property and the total amount of any outstanding debts secured by that property, such as mortgages or liens. When a property appreciates in value or as the mortgage balance is reduced through payments, the homeowner's equity increases. This concept is crucial for homeowners, real estate investors, and lenders, as it represents the owner's stake in the property.

For example, if a home is valued at $500,000 and the owner has a mortgage of $300,000, the owner's equity in that property is $200,000. This equity can be leveraged for loans, refinancing, or when selling the property. Understanding equity is essential not only for assessing personal wealth tied to real estate but also for making informed decisions regarding property investments and financing.