What does "equity" refer to in real estate?

In real estate, "equity" refers to the difference between the market value of a property and the amount owed on any associated loans or mortgages. This financial measure reflects the owner's stake or interest in the property. For example, if a property is valued at $300,000 and the owner owes $200,000 on their mortgage, the equity in the property is $100,000.

Equity can increase over time as property values rise or as the owner pays down their mortgage. It is an important concept because it represents what the homeowner would effectively own if they sold the property at its current market value.

Understanding equity is crucial for homeowners when considering refinancing, selling, or tapping into that equity for other financial needs, such as renovations or investments. This concept drives decision-making in a real estate context, making it particularly relevant for both buyers and sellers.