Final answer:
Equity represents the difference between a property's fair market value and the outstanding amount of any liens against it, such as a mortgage.
Step-by-step explanation:
The difference between a property's fair market value and the liens against it is known as equity. This is a key concept in real estate and personal finance, reflecting the actual ownership value that a person has built up in their property. As an example, if the market value of a house is $200,000 and the homeowner owes $180,000 to the bank, the equity in the home would be $20,000 ($200,000 market value - $180,000 debt = $20,000 equity). This is analogous to how shareholders have equity in a company; it represents what would be left for the homeowner after debts are paid off if the house were to be sold.