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

In real estate, "equity" refers 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 crucial as it represents the owner's financial interest in the property. For instance, if a property has a market value of $300,000 and the total outstanding mortgage and liens amount to $200,000, the equity in the property would be $100,000. This equity can increase over time as the market value rises or as the owner pays down the mortgage, allowing homeowners to leverage that value for loans or other financial opportunities. Understanding equity is fundamental for both homeowners and investors, as it impacts decisions about selling, refinancing, or using the property as collateral.