In real estate terms, what is "equity"?

Equity in real estate refers to the difference between the market value of a property and the total amount of any outstanding mortgage debt secured against that property. This definition captures the owner's stake or interest in the property. As a property appreciates in value over time, or as the homeowner pays down the mortgage principal, equity increases, providing the owner with a financial asset that can be leveraged for loans or cash when sold.

Understanding equity is crucial for buyers and homeowners because it directly impacts their financial situation and options concerning refinancing, selling, or borrowing against the property. The other answers do not accurately capture the definition of equity. The total value of all properties owned does not consider liabilities like mortgages. Cash available for down payments relates to initial purchase financing rather than ongoing ownership stake. Lastly, property value exceeding taxes does not relate to the ownership interest; it pertains to taxation assessments and does not accurately represent the concept of equity.