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

Equity in real estate is defined as the difference between the current market value of a property and the total amount of liabilities associated with that property, such as mortgages and liens. This concept is crucial as it represents the homeowner's financial interest in their property.

For instance, if a property is valued at $300,000 and the outstanding mortgage balance is $200,000, the homeowner has equity of $100,000 in that property. This equity can increase as the property value appreciates or as the mortgage balance decreases through payments.

Understanding equity is essential for making informed financial decisions regarding real estate, as it can affect borrowing capacity, options for refinancing, and potential proceeds from a sale.