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 owed on any mortgages or liens against that property. This financial concept indicates the portion of the property that the owner truly owns free and clear of debt. For example, if a property is worth $300,000 and the owner has a mortgage with a remaining balance of $200,000, the owner has an equity of $100,000. This is critical for homeowners as it influences their financial options, such as the ability to borrow against the home or to sell the home for profit.

The other options focus on different financial aspects of real estate. The total amount owed on the mortgage pertains specifically to liabilities rather than ownership value. Property value after depreciation considers the decrease in value over time due to wear and tear but does not directly describe equity. The amount invested in refurbishing a property reflects expenditures that may potentially increase value or improve living conditions but does not encapsulate the overall equity position of the property owner.