Casa Academy

Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Equity

Equity is an owner's remaining economic interest in real property after subtracting liens and other encumbrances from current market value, often expressed as value minus mortgage balance and representing wealth that can grow through appreciation and principal paydown.

Exam context

Compute equity as value minus outstanding liens. Distinguish equity from down payment (buyer cash at purchase) and from earnest money held in escrow before closing.

Calculating owner equity

If a home is worth $400,000 and the owner owes $250,000 on the first mortgage, equity is roughly $150,000 before selling costs. Equity rises when values increase or the loan balance falls. Negative equity occurs when debt exceeds value, limiting refinance and sale options without bringing cash to closing.

Equity in transactions

Sellers convert equity to cash at sale. Owners may tap equity through home equity loans or lines of credit, subject to lender limits. Agents discuss net proceeds, not gross price, when estimating seller equity after commissions and payoff statements.

Examples

  • Appreciation gain

    A buyer purchased for $300,000 with 20% down. After five years the home appraises at $360,000 and the loan balance is $220,000, so equity is about $140,000.

  • Short sale

    A owner owes $380,000 on a home worth $340,000. The $40,000 negative equity requires lender approval for a short sale or the owner must pay the deficiency at closing.

Keep studying

Practice equity questionsEnroll in pre-licensing

Related terms

  • Discount pointsUpfront fees that reduce interest and affect how fast equity builds.
  • FHA loansLow down payment programs that start buyers with smaller initial equity.

Related resources

Sources