Define the concept of 'equity' in real estate.

Equity in real estate is defined as 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 property owners because it represents the portion of the property that they truly own outright. When a property appreciates in value, or when the owner pays down their mortgage, their equity increases. Conversely, if the property value declines or if additional debt is incurred, equity can decrease.

Understanding equity is important for homeowners as it directly relates to their financial position and wealth creation. Home equity can be accessed through loans or lines of credit for various purposes, including home improvements or emergencies. Recognizing how equity works helps individuals make informed decisions about property investments and their overall financial strategy.