Definition of "Liability"

Dan Stutzman real estate agent

Written by

Dan Stutzmanelite badge icon

K Company Realty

A financial obligation comes in several ways. In general terms, the meaning of liability refers to the amount of money an individual or company owes to a lender. We define the party holding the liability as the debtor. Thus, liability can be a loan, mortgage, accounts, bonds, amassed expenses, warranties, etc. 

One must always clean up a balance sheet! A financial liability covers the amount payable in dollars (for instance, notes payable) or future services to be rendered (such as contractor services payable.) A debtor can meet the liability through various channels, such as money, services, merchandise, or property sale.

What does liability refer to in real estate?

In terms of real estate, liability defines the financial and insurance risks which owning real estate implies. Real estate liability occurs when the given property is in use, the owner intends to sell or trade it. No wonder real estate liability assessments are essential and valuable for property owners, lenders, and house-hunters too. These evaluations help define environmental liabilities that may emerge at real estate transactions.

Now, let’s look at what sense owning a home is a liability. 

Property means financial liability.

Firstly, it brings financial liability. A house can be pretty costly maintenance-wise. Often,


Need help as a:

I'm interested to:


I work in:

Reach out to the local professionals for help
I agree to receive FREE real estate advice.

Agents, get listed in your area. Sign up Now!

Here's what you'll get:

1. Full zipcodes coverage for the city of your choice for 3 months

2. The ability to reach a wider audience

3. No annual contract and no hidden fees

4. Live customer support/No robo calls

$75 - Any City - 3 Months Coverage
loader gif

Please wait ...

I agree to receive FREE real estate advice
I agree with Terms & Conditions and Section 5-5.9.
ver-improvement occurs. A property owner can spend a fortune on house refurbishment and still end up with less revenue than expected at a house sale. In other words, it can lose more money than it generates.

You can’t access your money invested in real estate conveniently.

Secondly, illiquidity means you can’t turn your property into cash quickly. Instead of keeping your money in a bank account or investing in stocks, accessing your invested capital in real estate isn’t easy. An obvious solution for this predicament is getting an equity line of credit. Still, this doesn’t cover your home’s entire value or your investments. Another option would be applying for a second mortgage. Nevertheless, this procedure is time-consuming and implies costs. Finally, you can sell your property, which can last months depending on local market trends.

You’re legally accountable for accidents on your property.

Thirdly, it generates legal liability. As a landlord, you must have legal coverage or insurance if something terrible happens on your leased property. Your tenant can fall on a slippery floor and sustain injuries, for example. The same formula applies to accidents on your driveway and people falling accidentally in your unsecured swimming pool. You can avert these situations with regular maintenance, proper safety cautions, and, most of all, a comprehensive insurance policy. You can certainly opt for and sign alimited liability company’s policy. 

Liability in accounting

Liability also defines a legal or administrative obligation or risk. You’ll find the term liability in bookkeeping too managed in the balance sheet. Typically, an enterprise can book or register liabilities in opposition to company resources. 

Current vs. non-current liabilities

We call a company’s current liability a financial responsibility or debt that an indebted party must settle within a year. Or, they must account for liability within a normal operating cycle in the case of accounts payable. In contrast with short-term responsibility, we have the long-term (non-current) financial debt that the company must meet in more than a year.

Actual vs. estimated liabilities

Another way to categorize liabilities is actual vs. estimated financial obligations. An actual liability exists and has a stated amount (accounts payable). In the case of an estimated liability, the loaned amount has to be predicted (e.g., estimated tax liability.) 

We speak about contingent liability in the case of a pending lawsuit. Depending on a court’s order, a debtor will have or not have to settle its contingent liability.

Comments for Liability

Steven Steven said:

can you transfere real estate liabilities such as law suits and owed money

Aug 11, 2021  21:33:26

Real Estate Agent

Hey Steven! Thank you for reaching out to us. As far as I understand, what you are referring to can be a case of fraudulent conveyance or fraudulent transfer. However, if the property is transferred before a certain date, usually several years before the lawsuit. Like that your property transfer can be safe from creditors. However, each state has different legislation when it comes to fraudulent conveyances or transfers. Hence, we suggest you discuss this topic with a real estate lawyer if you are interested more in the matter.

Aug 18, 2021  04:31:12
image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.


Popular Real Estate Terms

The definition of accommodation covers different meanings of the word, but they all express providing space, room, either physical or metaphorical. In other words, accommodation can be ...

People can use the term disclosure in ordinary day to day activities. The definition of disclosure is to expose yourself, to show the truth without omitting any important information. ...

Federal act passed in 1974 regulating mobile homes. The act defines a mobile home as a "Structure, transportable in one or more sections, which is eight body feet or more in width and is ...

Unexpected increase in the price of property not due to any effort on the owner's part. An example is when the appraised value of a house increases because of a population increase in the ...

The National Association of REALTORS® (NAR) is not only a commonly used term in the real estate industry, but it is also the largest trade association in the US. With over 1.4 million ...

Wood panels on a wall. ...

(1) Agreement to sell real estate with a pre-arranged reverse but at an established price. This may not be legal in some instances, and any resulting losses may not be tax deductible. (2) ...

Financial institution that services savings and checking accounts, provides loans, and deals with negotiable instruments. Stringent federal and local regulations exist over banking ...

Federal tax legislation notably establishing 10% withholding on interest and dividends. ...

Popular Real Estate Questions