The terms ‘Sweat Equity’ and ‘Gift of Equity’ in Real Estate

Understanding some terms relating to Equity establishes a basic need to know knowledge


So imagine sitting in a room watching a bunch of real estate marketers discussing and in their conversation you hear stuffs like ‘sweat equity’ and ‘gift of equity’.

You being a newbie to the gist, would go wondering what the fuss really is about the terms sweat equity and gift equity. Of course, you might know a thing or two about equity or the real estate business to a certain extent, but then some terms may end up being quite the complication.

So what exactly do these things mean? Are they even a real thing in real estate, or just some jargon made up on the spot by the marketers to confuse the investor and look smart?

Well, here is the deal with Sweat equity in the real estate market; it isn’t a classified type of equity per say, but a different way of saying your building asset or a building asset went through some renovations or improvements that add to its cost.

And originally, these improvements or renovations were done by yourself, through your own ‘sweat’ without any financial aid or assistance. Take for instance, you spent a considerable time renovating or remodeling let’s say a living room or a kitchen to increase the value of the home.

That in itself becomes ‘sweat equity’.

As for the ‘gift of equity’, this happens when a building property that is been sold doesn’t capitalize on the overall cost in every department of said building.

It’s like selling something you possess for a cheap price so it doesn’t look like it’s a gift even when in reality, it actually is a gift to this person you are intending to sell it to.

You know, most times, it might feel embarrassing handing over something for free to some people; either it is embarrassing for you or it is for them, so you want to go all political and professional and act like it’s strictly business when perhaps it is far from it.

The terms ‘Sweat Equity’ and ‘Gift of Equity’ in Real Estate

So in this case, the overall dollar or naira you capitalized on every inch of the building over the years either in remodeling or renovating or styling is ignored, and the sale price that is being given to this person does not cover all the equity the property should have.

May be the sale of the house is born out of a haste to sell the property, then the leftover amount is seen as ‘gift of equity’.

It is essentially the discount on the property, which to the seller becomes more of a liability than an asset.

Most times this occurs to persons looking to relocate to another country and looking for who to sell their residence to in haste, and thus, may likely not consider the equity because it isn’t exactly their goal.

Leave A Reply

Your email address will not be published.