What does "equity" mean in the context of real estate?

In real estate, "equity" refers specifically to the difference between the market value of a property and the total amount owed on any mortgages or liens against that property. This concept is fundamental in assessing an owner's financial stake in their property. 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 equity represents the portion of the property that the owner truly owns outright, which can increase as the property value appreciates or as the mortgage is paid down.

The understanding of equity is crucial for homeowners, investors, and real estate professionals, as it not only impacts personal wealth but also influences decisions concerning refinancing, selling, or leveraging the property for additional investments.