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

The term "equity" in real estate specifically refers to the difference between the market value of a property and the outstanding mortgage balance on that property. This definition encompasses the owner’s financial interest in the property, representing what they truly own after accounting for any debts secured against it.

For example, if a property has a market value of $300,000 and the mortgage balance is $200,000, the equity would be $100,000. This is important for homeowners, as equity can influence financial decisions, including refinancing, selling, or taking out a home equity line of credit. Equity reflects not only the owner’s investment in the property but also the appreciation or depreciation of the property’s value over time.

The other choices do not accurately capture the concept of equity. The total worth of the property considers both equity and any debts against it, while the value of the land only does not factor in improvements or the owner's stake. The cash received from a sale pertains to liquidity rather than the net value of the property ownership. Thus, identifying equity as the gap between market value and mortgage balance provides a clear and correct understanding of this fundamental real estate concept.