Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What term refers to the obligation to repay borrowed money?

1. Equity

2. Asset

3. Debt

4. Liability

The correct answer is: Liability

The term that refers to the obligation to repay borrowed money is "liability." In financial and accounting contexts, a liability represents any claims against a company or an individual's assets, typically arising from past transactions or events that obligate the entity to settle the debt in the future. In the context of real estate and brokerage, liabilities are essential to understand because they reflect the financial responsibilities an individual or business entity has. For instance, when a person takes out a mortgage to purchase a home, that mortgage represents a liability. The homeowner is obligated to repay the borrowed funds to the lender, making it a key component of their financial obligations. Equity, while related, specifically refers to the value of an ownership interest in an asset after deducting any liabilities associated with it. An asset is anything of value owned by an individual or company, and debt can be seen as a broader term encompassing any amount of money borrowed, but it does not specifically focus on the obligation aspect which is highlighted in the definition of liability.