Equity

Equity is the owner’s financial interest in real property. It is the difference between the property’s current value (or sales price) and the total debts (liens) secured by the property.

• Equity = Market Value (or Sales Price) − Total Liens (loan balance + other liens)

• Purchase price and down payment % (to find the loan amount)
• Loan balance at the time you’re asked about
  • If no payments have been made, the loan balance = original loan amount
  • If payments have been made, you’d need either:
    • an amortization schedule, or
    • info that lets you compute the remaining principal
• Sales price (or current market value)

• Down payment = Purchase Price × Down Payment %
• Loan amount = Purchase Price − Down payment
• Equity at sale (simple) = Sales Price − Loan Balance

Mr. Johnson purchased a property for $125,000 with 12% cash down. He sold for $139,750 before making any payments.

• Down payment = $125,000 × 0.12 = $15,000
• Loan amount = $125,000 − $15,000 = $110,000
• Since no payments were made: loan balance = $110,000
• Equity at sale = $139,750 − $110,000 = $29,750

(Alternate check: equity = down payment + profit = $15,000 + ($139,750 − $125,000) = $15,000 + $14,750 = $29,750)

• Interest rate and payment amount often appear in the question, but if it says no payments were made, you usually don’t need amortization—the balance hasn’t changed.