What does "equity" refer to in real estate?

Equity in real estate refers to the difference between the market value of a property and the amount owed on any mortgages or liens against that property. This concept is crucial for homeowners and investors because it represents the owner's financial interest in the property. For example, if a home is valued at $300,000 and the outstanding mortgage balance is $200,000, the homeowner has an equity of $100,000 in that property. This equity can grow over time as the property value increases or as the mortgage is paid down, and it is important in scenarios such as selling the property or refinancing the mortgage.

The other options do not accurately define equity: the total value of a property describes its overall market value but does not account for any liabilities against it; the commission for real estate agents is a fee based on the sale of a property and is unrelated to the owner's equity; and the annual property tax amount, while a recurring expense associated with property ownership, does not reflect the owner's financial stake.