What Happens to the equity when...?

Question

Where does the equity go in this situation:

Owner owes (mortgage): $102,000

Owner is asking:108,900

Home is worth: 120,000 (Appaisal)

buyer gives owner 108,900

What happens to the $18000 in equity? (120,000 - 102,000)

If the owner gets it, how do they get it? Cash?

Answer 1

Actually the (equity) would transfer to the new owner. By that I mean that if the house will appraise for $120,000 and you applied for a home equity loan, you would have $11,100 in equity. The difference between what you owe and what it is supposedly worth. Actually it is only worth $108,900 since that is what you paid for it and anything is only worth what someone will pay for it. That is why banks are in so much trouble now!!

Answer 2

Equity is only a "paper" asset in someones financial statement under net worth until it is cashed. The difference between what you owe and what you are selling the property for is the equity. When you sell, you would relize the equity at the closing. Remember any seller paid closing costs would also be deducted from this difference. (sales price 108,900 less mortgage 102000= 6,900 in equity less seller paid closing costs) The buyer of the property will be able to use the remaining equity of the difference between what his mtg is and the value. Most people dont sell property for that much less than the fair market value, buyer getting awesome deal.
Hope this helps.

Answer 3

There is no "equity", LOL! Equity is the paid-off portion of a value owned; ie if you own something worth $100, and only owe $50 on it, you have $50 in equity.

In your "situation" above, the buyer takes possession of the property free & clear for $108,900. The seller gives $102,000 of the money they receive to the mortgage company, and keeps the difference ($4,900). Plain & simple.

You have confused yourself somehow...

Answer 4

The appraisal is not the actual value of the home, only an estimate. The actual value is what a buyer will pay. Thus, If it is sold for 108,900 and 102,000 is owed, the equity is $6900. At closing, the bank holding the morgtage receives $102,000 and the owner receives his equity check for $6900.

Answer 5

You have a sadly skewed notion of equity. The $120K appraisal is an EDUCATED GUESS at market value. The REAL equity is the difference between the payout of the mortgage(s) and the sale price.

In other words, in this case there is NO $18,000 equity. It's $6900 in reality, the difference between the mortgage and the sale price.

Answer 6

You asked this on the UK section, and have used £ signs to indicate the currency involved therefore ignore the US replies ta;king about Real Estate or Sub Prime as we have a very different system, no where near as harsh as our US friends. UK law is that the Solicitor acting on behalf of the mortgage company will repay the outstanding loan as well as any additional costs incurred. The additional costs can be quite high, I should point out as they would have gone through the court process such as baliffs. There will be other outstanding fees for the Estate Agent acting on behalf of the Building Society to be repaid, and the costs of transfer of ownership involved in the transaction so you have to pay for the costs of the repossession, the sale, outstanding balance, and any fees incurred in outstanding charges for non payment such as letters asking you to pay the mortgage. Any remaining funds will be repaid to your friend but I should point out its a buyers market and many people are profiting from the misery of others. When an offer is made on the house it has to be done under a public notice normally in the property pages so your friend will get to see how much has been offered. Normally they say you have 7 days to come up with a better offer. He can ask the Solicitor for a breakdown of his fees and the additional costs, after completion.

Answer 7

the others are correct. THe appraisal is just an estimate. Sometimes you will get it, other times you won't. Let me give you a simpler example. Lets say you want to sell your 1999 honda accord. You would probably look at Kelly Blue Book to see what it is worth. They may tell you that it is worth $10k. So you try to sell it for $10k. in the end you find no buyers and ultimately sell for $9k. Nobody gets that $1k difference. You are the one who lost it.
Good luck selling!!

Answer 8

the home sold for $108,900. so the owner got $6,900 in equity.