What’s Real Estate “Equity?”
August 29th, 2008 By Peter G. Miller
In general terms, equity is the difference between the fair market value of your property and all debt it secures. A more conservative view defines equity as the fair market value of your property less debt and marketing costs.
Example: If you have a home worth $600,000 and a $225,000 mortgage, the equity is $375,000.
However, some lenders may see this differently. They may say that the cost of selling a home is equal to, say, 8 percent of the fair market price. Now the equity would be $600,000, less a $225,000 mortgage, less selling costs of $48,000. Total equity by this calculation: $327,000.
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