How Do You Value Your Home for Net Worth Purposes?

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bigtex
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How Do You Value Your Home for Net Worth Purposes?

Post by bigtex » Wed Mar 28, 2018 1:26 pm

My home makes up a large portion of my net worth because I am aggressively paying down principal, and I am only 27 years old. Right now, I currently show my home at the purchase price as a part of my net worth. I feel this is conservative as the purchase price is less than current tax assessed value, appraisal value, zillow value, and the value I think it would currently go for if it went on the market.

How do you all treat the value of your home?

How do you get an estimate for what your home is actually worth while also taking into account the transaction fees if it was sold?

Do you even include your home as a part of your net worth?

Jon H
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Jon H » Wed Mar 28, 2018 1:30 pm

Zillow should be pretty close unless you've made some significant modifications that haven't been updated on their site. Be aware that home value on Zillow will fluctuate with the buying/selling seasons.

I don't really look at it because I'm not going to sell for a while.

Home value certainly can be counted in net worth calculation although is not considered an liquid asset.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by nisiprius » Wed Mar 28, 2018 1:35 pm

You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I can't think of any reason at all to know my house's value to closer than ±20% accuracy. And the real estate crash shows that it's crazy to suppose that there is any way to know it any closer than that. Other than to actually sell it and see what an actual buyer is actually willing to pay for it, of course.

In the area where I live, houses are supposed to be assessed for their full value so whenever I've wanted to know what our house is worth, I just use the number from our real estate tax bill. It's an objective number that should be accepted as being legitimate by whomever want to know your net worth for whatever reason, and it's not so different from Zillow as to make me think either of them is a crazy number. If what you paid for it is less than what it was assessed for, then, I agree, your conservative approach seems completely legitimate to me.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by scone » Wed Mar 28, 2018 1:36 pm

I look at the sold comparables on my local MLS, using the two towns in my school district, going back only about six months. The MLS software lets me select for house size, lot size, number of bedrooms, baths, garage bays, etc. This usually cuts the number of houses down to a handful, and gives me a range of prices. I pay no attention to asking prices, Zillow estimates, etc.

I don’t look at these values very often, basically to keep my insurance updated. Knowing my net worth is mostly an ego thing, although it is comforting to have “enough.”
Last edited by scone on Wed Mar 28, 2018 1:40 pm, edited 1 time in total.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by dsmil » Wed Mar 28, 2018 1:37 pm

I calculate my net worth with and without the value of my home/mortgage. I used the zillow estimate until I recently moved to my new house, since the zillow estimate isn't very accurate with this one. I'll just use my own estimate until zillow catches up.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Pajamas » Wed Mar 28, 2018 1:39 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm
Right now, I currently show my home at the purchase price as a part of my net worth.
That seems reasonable since you have a mortgage that offsets much of the value of your house.

I don't include the value of my dwelling in my net worth because I focus on investable assets, although strictly speaking, it should be included in the calculation.

Here are some previous threads that discuss this issue:

viewtopic.php?f=2&t=227132

viewtopic.php?t=235305

viewtopic.php?t=181174

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by BradJ » Wed Mar 28, 2018 1:45 pm

I think purchase price is a good rule of thumb, that is unless you got a great deal. I always value my home, for net worth purposes, at what I consider a "liquidated" price. If I needed money in 30-60 days, what price would I be willing to list my home. This is an ultra conservative approach, so I would stick to your purchase price value.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by The Wizard » Wed Mar 28, 2018 1:47 pm

nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact...
I agree.
Hence, I don't spend any time computing or worrying about my net worth...
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by alex_686 » Wed Mar 28, 2018 1:48 pm

I tend to use 80% of Zillow for both my home and rental property. Estimation error, illiquid asset, specific risk. I rarely have a current appraisal, but even then I discount the value some.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by bighatnohorse » Wed Mar 28, 2018 1:52 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm

How do you all treat the value of your home?

How do you get an estimate for what your home is actually worth while also taking into account the transaction fees if it was sold?

Do you even include your home as a part of your net worth?
1) The "value" of my home is what it can do for me. It's "worth" is what it would sell for at market rate.
The value of my home has been diminishing because I use it less and less and it's taxes have been going up. It's worth has been appreciating and at some point soon I may value it's worth more than it's value. :shock:

2) Determining it's worth I will do on Zillow and talk to my real estate neighbor. To actually sell it for what it's worth, I will ask three different realty companies to provide comparable home sales. It's only worth what I can get for it at any given market time.

3) I consider my home as part of my net worth. However, some investments (alternative and private) refuse to consider a home or property as part of one's liquidity and thus, not include the home/property as part of one's net worth. See: https://en.wikipedia.org/wiki/Accredited_investor

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by ResearchMed » Wed Mar 28, 2018 1:54 pm

We expect eventually to use any equity in our home for assisted living or other long term care expenses, etc.

We've got a mortgage, one that we do not plan to pay off when DH retires, but we also don't expect to be here much beyond that, and may sell sooner if the stairs become more of a problem.

We used to ignore the modest equity, but prices here have increased so much, that it doesn't make sense to ignore it entirely, although we are NOT "counting on any of it".
So we look at the Zillow price and also sales prices as they occur in the area for anything vaguely similar to ours, and we "count" something like half the equity. That seems conservative enough for our general purposes.
That amount is sort of "enough to make a difference" long term, but also "not enough to cause hardship if prices plunge" and the equity goes "poof".

RM
Last edited by ResearchMed on Wed Mar 28, 2018 1:56 pm, edited 1 time in total.
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bigtex
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by bigtex » Wed Mar 28, 2018 1:55 pm

nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I guess the main reason I like to know my net worth at any given time is because I can use my net worth number to compare it to my annual expenses. It allows me to see how many times expenses I have saved if I were to convert my entire net worth to cash / investments. This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by KlangFool » Wed Mar 28, 2018 1:56 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm
My home makes up a large portion of my net worth because I am aggressively paying down principal, and I am only 27 years old. Right now, I currently show my home at the purchase price as a part of my net worth. I feel this is conservative as the purchase price is less than current tax assessed value, appraisal value, zillow value, and the value I think it would currently go for if it went on the market.

How do you all treat the value of your home?

How do you get an estimate for what your home is actually worth while also taking into account the transaction fees if it was sold?

Do you even include your home as a part of your net worth?
bigtex,

<<Do you even include your home as a part of your net worth?>>

No.

<<My home makes up a large portion of my net worth because I am aggressively paying down principal, and I am only 27 years old. >>

Unless you max up all your tax-advantaged accounts, it is probably a bad idea.

A) You probably paying too much tax in order to save a little bit of mortgage interest.

B) You are putting too many eggs into one illiquid basket. Aka, you are "House Poor".

KlangFool

retiredjg
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by retiredjg » Wed Mar 28, 2018 1:58 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm
Do you even include your home as a part of your net worth?
I've never calculated my net worth because there is nothing I can do with that number. It would not help me make decisions. It does not tell me if I can afford something or not. It's not something I could or would share. I don't see the point. Why bother?

Perhaps if you can determine what you will do with the number once you know your net worth, you can figure out how the home should be tracked in your calculations. If you are going to include your home in your net worth, just pick a reasonable way to do it and keep doing it that way forever.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by VinhoVerde » Wed Mar 28, 2018 2:00 pm

My house is counted as a pre-paid expense. It is a consumption item. I need it for shelter. It will, however, become an asset for my child to sell when I pass away.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by KlangFool » Wed Mar 28, 2018 2:01 pm

bigtex wrote:
Wed Mar 28, 2018 1:55 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I guess the main reason I like to know my net worth at any given time is because I can use my net worth number to compare it to my annual expenses. It allows me to see how many times expenses I have saved if I were to convert my entire net worth to cash / investments. This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
bigtex,

No. It does work very well with the house.

A) Until you sell, you do not know how much the house is worth. Whatever number that you guess now is just the best guess.

B) So, you sell the house. But, you still need to live somewhere. Your expense will change.

C) The house generates no income. On top of that, you need money to service the mortgage and property tax.

A better way is to calculate the number as 25X the expense including the mortgage as the expense. Do not include the home equity in that number.

By the way, if you have to count home equity as part of your net worth, you are buying too much house.

KlangFool
Last edited by KlangFool on Wed Mar 28, 2018 2:02 pm, edited 1 time in total.

jminv
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by jminv » Wed Mar 28, 2018 2:02 pm

I would value it at zillow estimate - mortgage outstanding - realtor fees (6% or less with a discounted broker) - holding time costs (mortgage, insurance, property tax, care and maintenance how long will you have to hold onto the house to sell, varies by market. You can substitute this for say a 5-10% cost if you discount the property for it to sell quickly, varies by market) - any repairs you know you would have to make to achieve the zillow estimate. That would give you a realistic estimate of your equity.
Last edited by jminv on Wed Mar 28, 2018 3:59 pm, edited 1 time in total.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Jack FFR1846 » Wed Mar 28, 2018 2:05 pm

I do what Zillow does and make up a number. Might be $500k or $2M or (ibDrEvil) $100B....whatever. It's not a useful number anyways, so what the heck.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by JoeRetire » Wed Mar 28, 2018 2:07 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm
How do you all treat the value of your home? How do you get an estimate for what your home is actually worth while also taking into account the transaction fees if it was sold? Do you even include your home as a part of your net worth?
I use ZIllow.
I estimate the fees I would incur when selling my home.
In my spreadsheet, I have two values for Net Worth - one including the equity in my 2 homes, one without. I use the former for grins, and the latter for actual planning and estimation.

LiterallyIronic
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by LiterallyIronic » Wed Mar 28, 2018 2:08 pm

I simply take Zillow's estimate and subtract the amount of our outstanding mortgage. I don't bother with taking out 6% for selling it, because we may or may not sell it. It's not like the value of the house really makes any difference - I can retire when I have $600,000 and a paid off house, regardless of how much that house is worth.
Last edited by LiterallyIronic on Wed Mar 28, 2018 2:09 pm, edited 1 time in total.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by sergeant » Wed Mar 28, 2018 2:09 pm

I don't. I don't consider it important enough to matter. It's where we live, that's it.
I know it could be sold for about 750k and is paid for but don't know if we would spend less or more to live in another place so don't include it in net worth estimate.
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bigtex
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by bigtex » Wed Mar 28, 2018 2:09 pm

KlangFool wrote:
Wed Mar 28, 2018 2:01 pm
bigtex wrote:
Wed Mar 28, 2018 1:55 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I guess the main reason I like to know my net worth at any given time is because I can use my net worth number to compare it to my annual expenses. It allows me to see how many times expenses I have saved if I were to convert my entire net worth to cash / investments. This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
bigtex,

No. It does work very well with the house.

A) Until you sell, you do not know how much the house is worth. Whatever number that you guess now is just the best guess.

B) So, you sell the house. But, you still need to live somewhere. Your expense will change.

C) The house generates no income. On top of that, you need money to service the mortgage and property tax.

A better way is to calculate the number as 25X the expense including the mortgage as the expense. Do not include the home equity in that number.

By the way, if you have to count home equity as part of your net worth, you are buying too much house.

KlangFool
What percent of net worth should the home make up? Under 10%?

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by retiredjg » Wed Mar 28, 2018 2:14 pm

bigtex wrote:
Wed Mar 28, 2018 1:55 pm
This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
Maybe, but I don't think so.

I've always understood that the 25 times expenses is a number derived from the 4% "safe" withdrawal rate (that may nor may not hold true for the future). The 4% "safe" withdrawal rate is from your portfolio (money that you have available to spend), not from your net worth.

Yes, if you have a valuable home and can downsize, you could add that excess cash to your portfolio. But you always have to have a place to live so you have to figure that some of your net worth will not be spendable as long as you own your home. Same is true for cars and boats and airplanes and all that other stuff that might go into your net worth. If you can't sell it and spend it, don't count it in your "25 times".

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by KlangFool » Wed Mar 28, 2018 2:16 pm

bigtex wrote:
Wed Mar 28, 2018 2:09 pm
KlangFool wrote:
Wed Mar 28, 2018 2:01 pm
bigtex wrote:
Wed Mar 28, 2018 1:55 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I guess the main reason I like to know my net worth at any given time is because I can use my net worth number to compare it to my annual expenses. It allows me to see how many times expenses I have saved if I were to convert my entire net worth to cash / investments. This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
bigtex,

No. It does work very well with the house.

A) Until you sell, you do not know how much the house is worth. Whatever number that you guess now is just the best guess.

B) So, you sell the house. But, you still need to live somewhere. Your expense will change.

C) The house generates no income. On top of that, you need money to service the mortgage and property tax.

A better way is to calculate the number as 25X the expense including the mortgage as the expense. Do not include the home equity in that number.

By the way, if you have to count home equity as part of your net worth, you are buying too much house.

KlangFool
What percent of net worth should the home make up? Under 10%?
bigtex,

Your net worth excluding the house should be 2.5 times the house purchase price. Or, the house's purchase price should be less than 40% of your net worth excluding the house.

Please note that I use house's purchase price instead of home equity.

KlangFool

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Hillview » Wed Mar 28, 2018 2:16 pm

Husband is getting new life insurance and they asked for net worth and we included the house as part of that. Aside from that not sure what else we'd need net worth for -- more useful to have retirements savings/college funds/emergency funds and expenses broken out for our purposes. We purchased 10 years ago and I've been using Zillow for house value. Recently we applied for a HELOC and the house valuation came in about 5% below Zillow so I feel good about using Zillow going forward. If you have a mortgage I'd calculate the zillow estimate minus the mortgage balance.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by jebmke » Wed Mar 28, 2018 2:17 pm

Only for estate planning.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by rkhusky » Wed Mar 28, 2018 2:22 pm

I track total net worth and retirement account net worth. I use our city's estimate of value, which is reasonable since we live in suburbia with many similar houses being bought/sold.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by moghopper » Wed Mar 28, 2018 2:23 pm

bigtex wrote:
Wed Mar 28, 2018 1:26 pm
Do you even include your home as a part of your net worth?
I include my home in net worth. I use my purchase price to value it, I don't update that value based on zillow, or tax assessments, or anything else.

I think of my net worth as something separate from my "investible assets." Therefore my home equity does not figure into any FI/SWR calculations.

bigtex
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by bigtex » Wed Mar 28, 2018 2:26 pm

retiredjg wrote:
Wed Mar 28, 2018 2:14 pm
bigtex wrote:
Wed Mar 28, 2018 1:55 pm
This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
Maybe, but I don't think so.

I've always understood that the 25 times expenses is a number derived from the 4% "safe" withdrawal rate (that may nor may not hold true for the future). The 4% "safe" withdrawal rate is from your portfolio (money that you have available to spend), not from your net worth.

Yes, if you have a valuable home and can downsize, you could add that excess cash to your portfolio. But you always have to have a place to live so you have to figure that some of your net worth will not be spendable as long as you own your home. Same is true for cars and boats and airplanes and all that other stuff that might go into your net worth. If you can't sell it and spend it, don't count it in your "25 times".
If you are including the current mortgage amount in your annual expenses that helps you get to 25X annual expenses calc, then you sell the house, invest the equity / proceeds from the sale and go rent a house for the same or less than what the old mortgage is. In that scenario, I don't see why you wouldn't use the home equity as a part of this 25X expense calculation.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by LiterallyIronic » Wed Mar 28, 2018 2:30 pm

bigtex wrote:
Wed Mar 28, 2018 2:26 pm
retiredjg wrote:
Wed Mar 28, 2018 2:14 pm
bigtex wrote:
Wed Mar 28, 2018 1:55 pm
This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
Maybe, but I don't think so.

I've always understood that the 25 times expenses is a number derived from the 4% "safe" withdrawal rate (that may nor may not hold true for the future). The 4% "safe" withdrawal rate is from your portfolio (money that you have available to spend), not from your net worth.

Yes, if you have a valuable home and can downsize, you could add that excess cash to your portfolio. But you always have to have a place to live so you have to figure that some of your net worth will not be spendable as long as you own your home. Same is true for cars and boats and airplanes and all that other stuff that might go into your net worth. If you can't sell it and spend it, don't count it in your "25 times".
If you are including the current mortgage amount in your annual expenses that helps you get to 25X annual expenses calc, then you sell the house, invest the equity / proceeds from the sale and go rent a house for the same or less than what the old mortgage is. In that scenario, I don't see why you wouldn't use the home equity as a part of this 25X expense calculation.
That's fine, as long as you include the rent in your 25x expense calculation. This means that your "x" in the "25x" is higher, because now you're paying rent instead of living in a paid-off house.

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greg24
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by greg24 » Wed Mar 28, 2018 2:33 pm

I use a number that is a conservative "feel" based on sale prices I see near me. I change it probably every couple years, but the value isn't very important to me.

I include it in my net worth calculation, because it is an asset on my balance sheet. To exclude it would be to calculate something other than net worth.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Jags4186 » Wed Mar 28, 2018 2:37 pm

Net worth equals assets - liabilities therefore your home value is part of your net worth. You value your home at present market value for net worth purposes. Of course this is offset by any debts on the property, HELOC or mortgage. Your home equity only serves to reduce your required cashflow for housing vs renting. A paid off home will still have property taxes and maintenance so a paid off home doesn’t eliminate housing costs.

From a financial independence standpoint a home’s value means about as much as owning a Picasso or Van Gough painting. You need investible assets approximately 25x your annual spending to be financially independent. A $1 million painting hanging on the wall doesn’t pay electric bills or buy groceries any more than a $1 million home does. Of course a paid off house will reduce your living expenses.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by runner3081 » Wed Mar 28, 2018 2:38 pm

For net worth, I take 80% of Zillow.

This allows me to be conservative and also allows for transaction costs (I.E., thinking if I needed to sell quickly, etc).

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by retiredjg » Wed Mar 28, 2018 2:41 pm

bigtex wrote:
Wed Mar 28, 2018 2:26 pm
retiredjg wrote:
Wed Mar 28, 2018 2:14 pm
bigtex wrote:
Wed Mar 28, 2018 1:55 pm
This helps me track how close I am getting to 25 times expenses which generally means one has achieved financial independence.
Maybe, but I don't think so.

I've always understood that the 25 times expenses is a number derived from the 4% "safe" withdrawal rate (that may nor may not hold true for the future). The 4% "safe" withdrawal rate is from your portfolio (money that you have available to spend), not from your net worth.

Yes, if you have a valuable home and can downsize, you could add that excess cash to your portfolio. But you always have to have a place to live so you have to figure that some of your net worth will not be spendable as long as you own your home. Same is true for cars and boats and airplanes and all that other stuff that might go into your net worth. If you can't sell it and spend it, don't count it in your "25 times".
If you are including the current mortgage amount in your annual expenses that helps you get to 25X annual expenses calc, then you sell the house, invest the equity / proceeds from the sale and go rent a house for the same or less than what the old mortgage is. In that scenario, I don't see why you wouldn't use the home equity as a part of this 25X expense calculation.
I suppose you could as long as you are not including the home's value in your "net worth". What you would have to include in your net worth is what you could put in your portfolio if/when you sell the house. That would be what you would actually walk away with after expenses of selling, paying off the mortgage, and moving to a new location. That could be considerably less than your homes "value".

That could be a pretty squishy number. This is not how most people go about doing this. That is not to say that your idea is wrong. Nevertheless, I think the 25x number assumes you have paid off your house and have a 25x portfolio.

Since you are 27 years old, I'm not sure I'd even put a lot of faith in the 25x number just yet. It might not be reasonable when you reach retirement.

Nate79
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Nate79 » Wed Mar 28, 2018 2:42 pm

I have two numbers I track, one is investment assets and one is total net worth which includes our home. Home value is based on Zillow and modified based on what I think it is worth based on upgrades and recent appraisal.

ResearchMed
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by ResearchMed » Wed Mar 28, 2018 2:43 pm

Jags4186 wrote:
Wed Mar 28, 2018 2:37 pm
Net worth equals assets - liabilities therefore your home value is part of your net worth. You value your home at present market value for net worth purposes. Of course this is offset by any debts on the property, HELOC or mortgage. Your home equity only serves to reduce your required cashflow for housing vs renting. A paid off home will still have property taxes and maintenance so a paid off home doesn’t eliminate housing costs.

From a financial independence standpoint a home’s value means about as much as owning a Picasso or Van Gough painting. You need investible assets approximately 25x your annual spending to be financially independent. A $1 million painting hanging on the wall doesn’t pay electric bills or buy groceries any more than a $1 million home does. Of course a paid off house will reduce your living expenses.
If one is willing to sell any of those assets (Picasso, Van Gogh, total of major jewelry sale value/etc., or home) should the money be helpful/necessary for retirement housing-type expenses such as assisted living, nursing home, or other long/longer term care, then it should be counted in "net worth".
Similarly, of course, the expected future expenses should account for any such housing/care needs.

RM
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Jags4186 » Wed Mar 28, 2018 2:46 pm

ResearchMed wrote:
Wed Mar 28, 2018 2:43 pm
Jags4186 wrote:
Wed Mar 28, 2018 2:37 pm
Net worth equals assets - liabilities therefore your home value is part of your net worth. You value your home at present market value for net worth purposes. Of course this is offset by any debts on the property, HELOC or mortgage. Your home equity only serves to reduce your required cashflow for housing vs renting. A paid off home will still have property taxes and maintenance so a paid off home doesn’t eliminate housing costs.

From a financial independence standpoint a home’s value means about as much as owning a Picasso or Van Gough painting. You need investible assets approximately 25x your annual spending to be financially independent. A $1 million painting hanging on the wall doesn’t pay electric bills or buy groceries any more than a $1 million home does. Of course a paid off house will reduce your living expenses.
If one is willing to sell any of those assets (Picasso, Van Gogh, total of major jewelry sale value/etc., or home) should the money be helpful/necessary for retirement housing-type expenses such as assisted living, nursing home, or other long/longer term care, then it should be counted in "net worth".
Similarly, of course, the expected future expenses should account for any such housing/care needs.

RM
Correct. You need to be willing to sell real property to have it pay for things and if you are unwilling to do so then it doesn’t help you be financially independent. Of course it still has value and is part of your net worth.

barnaclebob
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by barnaclebob » Wed Mar 28, 2018 2:54 pm

I keep it simple: 90% of Zillow value. Zillow should be with about 5% which is close enough for me.

Slacker
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Slacker » Wed Mar 28, 2018 3:21 pm

I don't include the value of any home I am living in.

For rental properties: our property managers provide us with "comps" every year "just in case we want to sell any properties". I use this as my rough guide to determine networth overall, subtracting 6% from the estimated value, deducting outstanding mortgages, and deducting capital gains taxes.

finite_difference
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by finite_difference » Wed Mar 28, 2018 3:31 pm

The Wizard wrote:
Wed Mar 28, 2018 1:47 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact...
I agree.
Hence, I don't spend any time computing or worrying about my net worth...
In my opinion, net worth is what determines when you are FI.

I would just average Zillow and Redfin’s estimates.
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Ged » Wed Mar 28, 2018 3:34 pm

The Wizard wrote:
Wed Mar 28, 2018 1:47 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact...
I agree.
Hence, I don't spend any time computing or worrying about my net worth...
It's worth having a ballpark number for estate planning or estimating if you can retire with the lifestyle you want. Otherwise I haven't run into a reason to calculate it.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Atilla » Wed Mar 28, 2018 3:38 pm

I use assessed value. Around here that number is always lower than sale price for as long as I've been paying attention (last 25 years).
Home value is not figured into asset allocation or counted toward $$ needed to retire since we need to live somewhere.
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The Outsider
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by The Outsider » Wed Mar 28, 2018 3:44 pm

finite_difference wrote:
Wed Mar 28, 2018 3:31 pm
The Wizard wrote:
Wed Mar 28, 2018 1:47 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact...
I agree.
Hence, I don't spend any time computing or worrying about my net worth...
In my opinion, net worth is what determines when you are FI.

I would just average Zillow and Redfin’s estimates.
It's also a great metric to quantify if you're accumulating and building wealth or losing ground. I review net worth qtrly and take appropriate action when needed. There's an old accountants cliche "If you don't measure it, you can't manage it"

I value my home at cost. Thats sufficient for my needs

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by letsgobobby » Wed Mar 28, 2018 3:44 pm

nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact.

I can't think of any reason at all to know my house's value to closer than ±20% accuracy. And the real estate crash shows that it's crazy to suppose that there is any way to know it any closer than that. Other than to actually sell it and see what an actual buyer is actually willing to pay for it, of course.
It’s pretty darn important for estate planning, at least in some cases.

wolf359
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by wolf359 » Wed Mar 28, 2018 3:51 pm

The Wizard wrote:
Wed Mar 28, 2018 1:47 pm
nisiprius wrote:
Wed Mar 28, 2018 1:35 pm
You have to begin by asking why you want to know your net worth and what you will use the number for. I've never been able to figure out any actual use for it other than to make me feel good and/or have an answer if someone asks me my net worth. Which I don't think has ever happened, in fact...
I agree.
Hence, I don't spend any time computing or worrying about my net worth...
Not sure I would want to answer truthfully if somebody DID ask. About the only person who I'd tell is my wife.

When I was in my 20's, my house was such a big part of my net worth that I included it. Now I don't include it, because it has no practical value except as a hedge (that is, if I have to sell it to replenish my investable assets assuming that I couldn't do so through work.)

jaj2276
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by jaj2276 » Wed Mar 28, 2018 4:11 pm

Carried at the original purchase price counting principal paid.

Every month I simply update my house line item in my net worth spreadsheet to be purchase_price - mortgage amount. Goes up some every month and the increase (i.e. the principal part of my mortgage payment) counts as savings for the month.

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Re: How Do You Value Your Home for Net Worth Purposes?

Post by basspond » Wed Mar 28, 2018 4:11 pm

I used the value of the sale price of what we bought the house for at least 10 years. Equity in housing is an asset but in the end you will always need a place to live. I don’t pay much attention to net worth, more so to retirement accounts value.

TN_Boy
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by TN_Boy » Wed Mar 28, 2018 4:35 pm

Jags4186 wrote:
Wed Mar 28, 2018 2:46 pm
ResearchMed wrote:
Wed Mar 28, 2018 2:43 pm
Jags4186 wrote:
Wed Mar 28, 2018 2:37 pm
Net worth equals assets - liabilities therefore your home value is part of your net worth. You value your home at present market value for net worth purposes. Of course this is offset by any debts on the property, HELOC or mortgage. Your home equity only serves to reduce your required cashflow for housing vs renting. A paid off home will still have property taxes and maintenance so a paid off home doesn’t eliminate housing costs.

From a financial independence standpoint a home’s value means about as much as owning a Picasso or Van Gough painting. You need investible assets approximately 25x your annual spending to be financially independent. A $1 million painting hanging on the wall doesn’t pay electric bills or buy groceries any more than a $1 million home does. Of course a paid off house will reduce your living expenses.
If one is willing to sell any of those assets (Picasso, Van Gogh, total of major jewelry sale value/etc., or home) should the money be helpful/necessary for retirement housing-type expenses such as assisted living, nursing home, or other long/longer term care, then it should be counted in "net worth".
Similarly, of course, the expected future expenses should account for any such housing/care needs.

RM
Correct. You need to be willing to sell real property to have it pay for things and if you are unwilling to do so then it doesn’t help you be financially independent. Of course it still has value and is part of your net worth.
Yes.

I continue to be baffled that many posters in these net worth threads refuse to consider the possibility that a house might be useful paying for things like LTC. In which case it's good to know your home equity. The equity in our not especially grand house would pay for at least three years of assisted living in the area where I live.

Why would I ...... intentionally not know that?? I guess some people just assume all will go well and that they will live comfortably in their house until they die. I know a number of people for whom it did not play out that way.

TG2
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by TG2 » Wed Mar 28, 2018 4:36 pm

I am another one who almost never bothers with a net worth calculation. I never need or use it for anything other than entertainment. The number that is relevant to me is "financial assets." That is what I make plans from and what will determine the rest of my life. That being said, I do include my home value as part of net worth. You have to, or else it isn't "net worth."

I used to use the tax-assessed value and update it each year. That wasn't very close, considering that it only updated once per year and prices go up rapidly here. I am now using the Zillow value on the first of each month. It may go up and down a bit, but it is never a year behind. Again, does it matter? No. I'm never selling anyway, but if I am going to track net worth at all I need to at least be close.

Afty
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Re: How Do You Value Your Home for Net Worth Purposes?

Post by Afty » Wed Mar 28, 2018 4:40 pm

I average the Zillow and Redfin estimates. My goal is just to be in the right ballpark and to keep an eye on whether the value is going up or down.

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