Definition
Home equity is the share of your property you actually own outright — its current value minus any debts secured against it, like a mortgage or home equity line. It grows over time as you pay down your loan balance and as the local market appreciates, and it shrinks if you borrow against the home. Your equity is essentially the pool your net sale proceeds come from, so understanding it is the first step in figuring out what you'll actually walk away with after selling. Homeowners sometimes underestimate their equity because they're working from an outdated mental picture of their home's value, especially after several years of appreciation. Getting a current, realistic estimate — through a comparative market analysis, an appraisal, or a cash buyer's evaluation — is the best way to know exactly where you stand before making any selling decisions.
Example
Ben's home was worth about $310,000, with a $180,000 mortgage and a $25,000 home equity line of credit against it from a bathroom remodel years earlier. That left him with roughly $105,000 in equity before accounting for any selling costs, a number he hadn't actually calculated until he sat down with a cash buyer. Seeing that figure clearly helped Ben decide whether a traditional listing or a faster cash sale made more financial sense for his particular situation. Once he subtracted estimated commissions, staging costs, and needed repairs from the traditional route, the two options ended up far closer in net proceeds than he originally expected. Ben ultimately chose the cash sale for its speed and certainty, closing in twelve days without a single showing. He walked away with almost the same amount he would have netted from a listing that could have taken months longer to complete.