What is the definition of "equity" in real estate?

In real estate, "equity" represents the difference between the current market value of a property and the amount still owed on any mortgage or other debts secured by that property. This definition illustrates that equity not only reflects ownership in a property but also serves as an important factor in determining the financial health of a homeowner. As the market value of a property increases or as the mortgage debt is paid down, a homeowner's equity can grow, which is an essential aspect for both investment purposes and financial planning.

Understanding equity is crucial for real estate transactions because it directly impacts a homeowner's ability to refinance, sell the property, or take out a home equity loan. Thus, knowing this metric helps homeowners and investors make informed decisions regarding their real estate assets.