The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: MountainLakeMama on July 01, 2021, 03:24:49 PM
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Just curious what others do... I use the number my house actually appraised for 7 years ago, but if I used the Zestimate, I would more than double my net worth. It's tempting, but I'm not sure how accurate it is!
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Before we refinanced last year and got an actual appraisal again I would use the purchase price and some delta factor. Zillow might give you a trend and you can then look up comps for similar houses in the area (either for sale or even check if you have access to public records for actual sale prices) then apply what you think is reasonable.
Of course house value within net worth only seems worth really worrying about if you're going to be selling in the near term.
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Zillow's estimate isn't an exact science, but it's the best thing we have outside of selling your home to see what you can get for it.
I do my networth statement once a month. Once a year I grab the zillow estimate and use that for the next 12 months. That way I get realistic appreciation, but I'm not subject to an algorithm's moods.
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I plug in a formula of (Zillow Estimate + Redfin Estimate)/2 * 90% = approx home value. the 0.9 is to account for the theoretical cost of offloading the asset (selling costs, needed repairs, etc).
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I plug in a formula of (Zillow Estimate + Redfin Estimate)/2 * 90% = approx home value. the 0.9 is to account for the theoretical cost of offloading the asset (selling costs, needed repairs, etc).
I do something similar, but also factor in taxes
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I used to but zillow has been bouncing around a lot more lately for me (can be 10% up or down in a month). So I finally just picked a down month about half a year ago and haven't updated it since.
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I use it for every property. It's been erratic in the past, but these days it's reasonably close. By that, I mean it's still on the low side, but it's at least what we'd get. Redfin is crazy low, but I like their site better than Zillow, so both of them are useful in different ways.
FWIW, I cared a lot more about my home's value pre-FIRE. Once you hit your FIRE number, everything grows at such an insane rate that the value of your house isn't that important. Its crazy how it grows!
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I'm using 85% of the Zillow estimate. I think it's pretty accurate right now, considering that everything around here is selling within days of coming to market.
I'm allowing for selling costs plus cost of some upgrades that would need to be done before putting it on the market. Once we get my daughter through college we'll worry about doing the rest of the windows and the master bath.
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No, I use the most recent appraised valuation from a past refinance. I'm probably finished with refinancing so I'll just use that number until I die or move.
Caveat: I'm very lazy and a net worth number going up or down as a result of real estate valuation has zero bearing on long-term financial plans. I do calculate NW on the first of each month just cuz but it's more to track progress of other non-real estate assets and non-mortgage liabilities (Thus am okay if a "truer" Zillow Zestimate or whatever estimate would be more accurate but I can't be bothered to track that as well).
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Funny, I'd never used Redfin, so I went in to see what my home was worth. It was way lower than I expected. After entering the correct lot size and updating some home facts, the estimate went up $100k. It's still $50k less than Zillow, though.
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I plug in a formula of (Zillow Estimate + Redfin Estimate)/2 * 90% = approx home value. the 0.9 is to account for the theoretical cost of offloading the asset (selling costs, needed repairs, etc).
I've just been averaging the two, but I like this better. Gonna switch when I close on my new house next month.
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No, because I don't bother calculating my total net worth.
I don't care about the value of my house unless i'm going to tap into that equity. Otherwise, it's irrelevant to me.
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if you are planning on selling and downsizing a zesty estimate should boost your Net Worth.
If you like your house and want to stay, it is actually a liability since you have to pay to maintain it.
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No, I use the most recent appraised valuation from a past refinance. I'm probably finished with refinancing so I'll just use that number until I die or move.
Caveat: I'm very lazy and a net worth number going up or down as a result of real estate valuation has zero bearing on long-term financial plans. I do calculate NW on the first of each month just cuz but it's more to track progress of other non-real estate assets and non-mortgage liabilities (Thus am okay if a "truer" Zillow Zestimate or whatever estimate would be more accurate but I can't be bothered to track that as well).
I do similar to this. Hopefully this means that as time marches on, my net worth becomes increasingly conservative. Given the difference between what the sites say our house is worth compared with what we paid for it, I feel like using Redfin/Zillow's number is analogous to buying a lottery ticket and then including the jackpot in your net worth. I'll wait until it's realized, thank you.
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I look up the estimate in three places: Realtor.com AND Zillow AND Redfin, and then average the three for an idea of what a fair price would be once renovated.
And then I discount by 20% to take into account needed updates - such as a replacement deck, and a gutted kitchen and master bath.
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I do not use the zestimate.
I look at zillow for sold comps and estimate my own value based on sold comps. I deduct 7% for transaction costs and count the remaining equity into my net worth.
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I still use the appraisal price from when we bought the house. I'm not planning on moving for 20 years so it doesn't really matter :).
But for what it is worth, the zestimate on the last house we sold was correct to the dollar. I'm sure it is very neighborhood dependent though.
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Question for all the people who use the last appraisal instead of a current online estimate: what is the purpose of this? Why even bother including your home value if you are going to use an outdated value? What purpose does it serve? If you aren't going to account for your current house value, then why include an outdated/more inaccurate one at all?
I feel like I'm missing something.
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None of the real estate sites' estimates account for our extra lot or detached garage so we know that the estimates are based on junk data. And even though realtor.com, Redfin and Zillow are all based on the same incomplete info, there's a significant spread in their estimates. Realtor.com seems really low based on local comps, while Zillow feels a little high if they're short changing our lot size and outbuildings. So for us watching the estimates is more entertainment than useful datapoint. We don't count values of vehicles, jewelry, or any other possessions either.
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Yes I use it. Otherwise there would be no way to track the NW effect of paying down my 15y mortgage. It’s also important to understand how I’m allocating my assets. I.e. Where am I on the spectrum of house poor vs. leveraging my home equity into the stock market? I see a ton of posts here about “can I retire with $500k liquid and $1M home equity?” Well, no, you can’t. But if you sell that house and move to a LCOL area you’re set for life.
@Dave1442397 has a good point about subtracting closing costs from the zestimate to arrive at a cash in hand value that is relevant to decisions like moving, switching to being a renter, or doing the van life thing.
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Question for all the people who use the last appraisal instead of a current online estimate: what is the purpose of this? Why even bother including your home value if you are going to use an outdated value? What purpose does it serve? If you aren't going to account for your current house value, then why include an outdated/more inaccurate one at all?
I feel like I'm missing something.
I think for me it works a bit like an emotional trick (not unlike the Dave Ramsey snowball) - I like seeing that boost to my NW, but I also know housing markets are volatile so appraisal price feels like a nice way to acknowledge the value and see that mortgage payments make a difference but not take into account crazy potential bubbles.
I find myself becoming like Dicey though, the more my money earns money, the more I find myself leaving the house out when I periodically check my networth.
I did this with my cars too. When I didn't have much, I counted the blue book value of our cars in the networth. Once I hit 100k or so, cars didn't matter. I suspect as we come closer to 1 million, the home equity won't matter as much either.
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Question for all the people who use the last appraisal instead of a current online estimate: what is the purpose of this? Why even bother including your home value if you are going to use an outdated value? What purpose does it serve? If you aren't going to account for your current house value, then why include an outdated/more inaccurate one at all?
I feel like I'm missing something.
I like that it serves as a "close-to-worst case value" and that I have to spend 0 minutes moving forward on research as it won't change. I also feel the estimates can be pie-in-the-sky and as others have mentioned, there are costs to selling so a downward adjustment would be needed if using the "truer" value. If I did use the more accurate number but then had to subtract for some selling costs, I'm right back to the neighborhood of my last appraisal anyway so I don't see much value in taking time to track this. If and when I do move, the equity is likely to be greater than the difference from my monthly NW sheet of what I have written down as the asset value (last appraised value) minus what I owe on the mortgage. This sounds better to me than the opposite problem and again, I'm not interested in taking the time to nail it down with much more precision.
It's sorta similar to the traditional vs. Roth question where people choose traditional and run the risk of having "too much money" when older (as opposed to not enough money but in a Roth). Here, if I'm wrong and my risk is that my house is worth more than I wrote down in my monthly NW spreadsheet, there's not too much downside.
Still, this is what works for now. I receive occasional pieces of junk mail that have the estimated value of my home on there. If the truer price of the property got so far out of line with the appraised rate, I would change my method as it could have an impact on financial decisions to an extent (could change schedule of when to move, how much to put down on next house, etc.). But I don't see that happening anytime soon, if ever. Maybe if I didn't live in a 1008 sq ft brick house built in 1939 surrounded by other similar houses I'd worry about prices more. Shit just doesn't change that much here.
I just like watching the numbers change with minimal effort, mostly the investment ones. If it turns out I'm actually better off than I realize because my property is worth more when it comes times to sell many years down the road, I'm fine with being pleasantly surprised.
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Question for all the people who use the last appraisal instead of a current online estimate: what is the purpose of this? Why even bother including your home value if you are going to use an outdated value? What purpose does it serve? If you aren't going to account for your current house value, then why include an outdated/more inaccurate one at all?
I feel like I'm missing something.
I use the last appraisal for the same reason you don't bother to calculate net worth at all: my home equity and total net worth in general are more mildly interesting facts than anything else. I like tracking my total net worth just for fun, but it also doesn't really have anything to do with my FI plans. (That's just my invested stash, which I also track.)
If I decide at some point that selling my home will be an important part of my FIRE strategy, then I'd probably try to estimate it more accurately. As is, with no plans to sell, I'm fine just using the appraisal and having one less fluctuating number to pay attention to. That generally means that I'm underestimating my net worth, but that doesn't matter since it's really not impacting my plans anyway.
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Thanks for all the answers, but it still doesn't make sense to me. Meaning, why use it at all if you are going to use an outdated/inaccurate number? Why include house value at all if you aren't trying to account for its current value?
I just can't figure out what purpose it serves.
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Do you also track the sales costs including any state/fed cap gains taxes?
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Thanks for all the answers, but it still doesn't make sense to me. Meaning, why use it at all if you are going to use an outdated/inaccurate number? Why include house value at all if you aren't trying to account for its current value?
I just can't figure out what purpose it serves.
I include house value in my net worth calculation because I have a mortgage on the liabilities side that I enjoy watching slowly* get smaller. I also like seeing real estate become a smaller % of my overall portfolio as that is intuitive to me as progress toward independence. I have no plans on moving anytime soon. If I did, I may change my methodology for the one input. It's just easier to have a static amount on the assets side until I sell (again, unless the real value was so wildly off that I would update it and for the time being, it's roughly accurate when taking into account selling costs) or get to a point where I decide I don't care about real estate being reflected in NW at all.
* - I'm in the DPOYM group after all.
NW is not a very useful calculation for me though it is easy to track at different points in time. It's just for fun and to get a ballpark estimate of where things are, of which the value of the house is just one of many buckets. When it comes time to retire, I won't be doing it as a result of what my NW is telling me or how much my house is valued. NW is a largely meaningless number in terms of how actionable it is. I like numbers, though. Seeing my NW go up 16k from 6/1/21 to 7/1/21 (even though only 5% was from liabilities reducing) is more fun than seeing my FI progress nudge up by .1%.
YMMV (clearly)
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Net worth is only meaningless if you expect to keep the same house (or a house of equal value) for the rest of your life. Once we FIRE I expect our housing and even the state we live in to change. Therefore, I do use the Zillow Zestimate because I like having an eye on what we are worth if we liquidate tomorrow and peace out of the current location/grind.
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When we bought our house Redfin's estimate was much closer to the actual purchase price than Zillow's, so I've used that value ever since just to be consistent.
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When we bought our house Redfin's estimate was much closer to the actual purchase price than Zillow's, so I've used that value ever since just to be consistent.
Interesting. I wonder if this is area dependent? Where I am houses are consistently selling for 10-20K over the Zillow Zestimate, so I've felt pretty confident justifying using Zillow.
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Net worth is only meaningless if you expect to keep the same house (or a house of equal value) for the rest of your life. Once we FIRE I expect our housing and even the state we live in to change. Therefore, I do use the Zillow Zestimate because I like having an eye on what we are worth if we liquidate tomorrow and peace out of the current location/grind.
It's also useless if your next house is going to be in roughly the same price range.
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Redfin isn't even available where I live, out here in the wilds of Colorado.
Zillow is pretty accurate though. Even if the zillow estimate is slightly higher than reality, I use that estimate on the next 12 months' worth of networth updates, so reality should have time to catch up.
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When we bought our house Redfin's estimate was much closer to the actual purchase price than Zillow's, so I've used that value ever since just to be consistent.
Interesting. I wonder if this is area dependent? Where I am houses are consistently selling for 10-20K over the Zillow Zestimate, so I've felt pretty confident justifying using Zillow.
It's individual-house-dependent. Zillow and Redfin have a lot of data, but there are aspects to every house that aren't well captured in the data. Obviously the size and number of bedrooms and location will make the biggest contribution to the price. The condition of the house and architectural aesthetic and layout and other factors that they don't have data on will also play a role. You should expect both companies to be wrong in some direction, and it could be wrong in different ways about your neighbor's house! That's why I just picked the formula that came out closest to my house's actual purchase price when I bought it. Maybe Zillow is less wrong than Redfin about my house now, even though it was more wrong before. I'm not going to lose any sleep over it. Not planning to sell anytime soon.
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94% of the Zestimate, yes. To account for agent fees when selling the house.
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When we bought our house Redfin's estimate was much closer to the actual purchase price than Zillow's, so I've used that value ever since just to be consistent.
Interesting. I wonder if this is area dependent? Where I am houses are consistently selling for 10-20K over the Zillow Zestimate, so I've felt pretty confident justifying using Zillow.
It's individual-house-dependent. Zillow and Redfin have a lot of data, but there are aspects to every house that aren't well captured in the data. Obviously the size and number of bedrooms and location will make the biggest contribution to the price. The condition of the house and architectural aesthetic and layout and other factors that they don't have data on will also play a role. You should expect both companies to be wrong in some direction, and it could be wrong in different ways about your neighbor's house! That's why I just picked the formula that came out closest to my house's actual purchase price when I bought it. Maybe Zillow is less wrong than Redfin about my house now, even though it was more wrong before. I'm not going to lose any sleep over it. Not planning to sell anytime soon.
Ah good points. There is enough activity here that I enjoy watching the sale prices for our area and comparing them to the algorithms. But again that is mainly because I do not plan on holding on to this house forever, and I don't expect our next house to be in the same price range. Also because I'm a numbers nerd...
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Nope. Housing is not included in my NW. I will always have to live /somewhere/ and currently in a medium cost of living area/median priced house. Most areas I would want to move to would cost more, so really irrelevant. Technically its an asset, but not one I could really use unless planning on living in an apartment for the rest of my days (nope).
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Nope. Housing is not included in my NW. I will always have to live /somewhere/ and currently in a medium cost of living area/median priced house. Most areas I would want to move to would cost more, so really irrelevant. Technically its an asset, but not one I could really use unless planning on living in an apartment for the rest of my days (nope).
Then you are not calculating your net worth. Which is fine, but don't say it's not included in your NW, that's simply incorrect. Maybe say it's not included in your stache? Or maybe it's not a part of your FIRE calculation?
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I use my equity in my NW only and leave out the debt of the mortgage. I know my place will never lose value unless we get hit by a tidal wave. When I sell I’ll pay of the mortgage and take the remainder with me. I can only be sure of the actual equity or money being added now. I’m treating anything that comes in more as pure bonus, but it doesn’t help me unless I sell the place, which I won’t do for awhile unless something forces my hand. I do know that I will sell the place eventually so I think of my property as basically a savings account.
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I look up the estimate in three places: Realtor.com AND Zillow AND Redfin, and then average the three for an idea of what a fair price would be once renovated.
And then I discount by 20% to take into account needed updates - such as a replacement deck, and a gutted kitchen and master bath.
This is very close to what I do. I update value every 3-6 months depending on how hot the market seems. I average across Realtor.com and Zillow and whatever comps in my neighborhood have been listed at, and then discount it by about 20% for costs to sell (renovations, realtor, etc).
It's a pretty meaningless number to me, though, b/c real estate is subjectively very cheap here and it's such a small part of our net worth.
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When we bought our house Redfin's estimate was much closer to the actual purchase price than Zillow's, so I've used that value ever since just to be consistent.
Interesting. I wonder if this is area dependent? Where I am houses are consistently selling for 10-20K over the Zillow Zestimate, so I've felt pretty confident justifying using Zillow.
It's individual-house-dependent. Zillow and Redfin have a lot of data, but there are aspects to every house that aren't well captured in the data. Obviously the size and number of bedrooms and location will make the biggest contribution to the price. The condition of the house and architectural aesthetic and layout and other factors that they don't have data on will also play a role. You should expect both companies to be wrong in some direction, and it could be wrong in different ways about your neighbor's house! That's why I just picked the formula that came out closest to my house's actual purchase price when I bought it. Maybe Zillow is less wrong than Redfin about my house now, even though it was more wrong before. I'm not going to lose any sleep over it. Not planning to sell anytime soon.
You can also correct information on both sites, so check to see if the facts are materially correct. One of my rentals has an optional Casita. Apparently the builder never reported it, though it was done when the house was built. I corrected the bed, bath, and sf numbers and the home value jumped.
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What are you trying to gain by constantly updating your house value? I don't see the point for most people.
I guess I could see the point if you're planning to cash out home equity to downsize. But otherwise it's not a liquid asset that you can really use to accelerate FIRE plans.
I'm planning to stay in my house for 20+ years. I keep my home valued at-cost in my spreadsheet just to avoid confusing it with my investable assets that are constantly changing in their utility for FIRE. Sure, I could add ~$150K of net worth gains since I bought the house, but that doesn't get me a day closer to FIRE.
Note: If you dive into the business accounting world, many business assets are valued similarly at-cost and are not frequently updated for mark-to-market valuations. The biggest difference would be that buildings (but not land) are depreciated over time.
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I do, but I only update it once a year, on the anniversary of our closing. It doesn’t bother me that it’s not accurate. My NW isn’t my FI number, since I’ll have to have a place to live even if I’m FI.
Anecdotally, when we refinanced in December, the zestimate was less than the appraisal.
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I use the amount of principal we have paid on hour houses. I like the 0.9*(Zillow+Redfin+Realtor)/3 approach though and it is probably less work than what I do. Since I value laziness I may switch over. In fact for our investment property that method would actually be more accurate.
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What are you trying to gain by constantly updating your house value?
Just a more accurate estimate of net worth. It's fun and interesting for many of us to track this number. I totally agree that for people who don't plan to move anytime soon, it's a less useful number than the value of investments.
There can be value in looking at it from time to time though. It keeps you abreast of the state of your local housing market. Maybe there's some price threshold up or down that would convince you to make a move. Maybe you're in the don't pay off your mortgage club and would be interested in pursuing a cash-out refinance once the loan-to-value ratio on your existing loan falls below a certain threshold. If your house has appreciated quite a bit, maybe you're getting close to the limit on capital gains exclusion. Once you get there you have a decision to make: do you accept that you'll pay a potentially large amount of tax when you eventually sell, or do you pay a one-time transaction cost to move to a different house and reset your basis?
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What are you trying to gain by constantly updating your house value?
Just a more accurate estimate of net worth. It's fun and interesting for many of us to track this number. I totally agree that for people who don't plan to move anytime soon, it's a less useful number than the value of investments.
There can be value in looking at it from time to time though. It keeps you abreast of the state of your local housing market. Maybe there's some price threshold up or down that would convince you to make a move. Maybe you're in the don't pay off your mortgage club and would be interested in pursuing a cash-out refinance once the loan-to-value ratio on your existing loan falls below a certain threshold. If your house has appreciated quite a bit, maybe you're getting close to the limit on capital gains exclusion. Once you get there you have a decision to make: do you accept that you'll pay a potentially large amount of tax when you eventually sell, or do you pay a one-time transaction cost to move to a different house and reset your basis?
There are other related advantages I can think of. I still visit my 96-year-old former neighbor once a week. We were listening to the radio while doing the NYT Sunday Crossword. One of those pay cash no questions asked ads came on. She wondered what was up with all those ads, letters and phone calls. Knowing what she paid for it, I asked her if she thought $750k would be a good price. "You really think I could get that much?", she asked. No, sweetie, it's worth $896k per recent comps, without lifting a finger. She was shocked. There is value to keeping up with what is going on in your market, whether you include it in your TNW or not. It's also a useful metric for assuring adequate insurance coverage.
I sold my larger place next door in 2012 for $600k, which was well over asking. I thought the buyers were bat-shit crazy. Now less fixed up ones are pushing hard up against $1M. For a 1700sf townhouse. Egads!
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I don't track my net worth because I don't find it meaningful or actionable.
If I'm wanting to estimate what my house is worth, I look at the Zestimate, but also listing for sold properties near mine. I look at photos, descriptions, etc., and try to objectively compare them. "Oh, this one has a new kitchen which would make it worth more, but mine has that extra finished attic space. The view on this other one is better, so it's likely worth a bit more." And general $/sqft. That sort of thing.
This is what I did fairly recently when trying to decide whether to sell or keep renting out the place we own. I think that helped me get a better idea than just the zestimate. That's basically what RE agents do and typically, it doesn't take any special knowledge to get an approximate value.
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I include all assets and liabilities in my net worth. NW is a useful way to inventory all your assets and liabilities and inform decisions on how you want to manage them. But not all your assets and liabilities will necessarily come into play in your various cash flow analyses, including your FIRE calc. I don’t use home equity in my FIRE calc.
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I include the tax cost basis of my house in net worth. That offsets the mortgage balance at least. If I were to sell the house right now, I could probably get at least $50k more than the cost basis.
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What are you trying to gain by constantly updating your house value? I don't see the point for most people.
I guess I could see the point if you're planning to cash out home equity to downsize. But otherwise it's not a liquid asset that you can really use to accelerate FIRE plans.
I'm planning to stay in my house for 20+ years. I keep my home valued at-cost in my spreadsheet just to avoid confusing it with my investable assets that are constantly changing in their utility for FIRE. Sure, I could add ~$150K of net worth gains since I bought the house, but that doesn't get me a day closer to FIRE.
Note: If you dive into the business accounting world, many business assets are valued similarly at-cost and are not frequently updated for mark-to-market valuations. The biggest difference would be that buildings (but not land) are depreciated over time.
To know when you can officially call yourself a 'millionaire ', duh!
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Historically I had used the tax value since they run comps annually. It tends to be a lagging indicator. Which is a bit of a problem when the area has gone up 40% in a year.
This year, I know exactly what the identical floorplan house across the street sold for the month before my estimate, I discounted $25k to be safe and used that number.
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What are you trying to gain by constantly updating your house value? I don't see the point for most people.
I guess I could see the point if you're planning to cash out home equity to downsize. But otherwise it's not a liquid asset that you can really use to accelerate FIRE plans.
I'm planning to stay in my house for 20+ years. I keep my home valued at-cost in my spreadsheet just to avoid confusing it with my investable assets that are constantly changing in their utility for FIRE. Sure, I could add ~$150K of net worth gains since I bought the house, but that doesn't get me a day closer to FIRE.
Note: If you dive into the business accounting world, many business assets are valued similarly at-cost and are not frequently updated for mark-to-market valuations. The biggest difference would be that buildings (but not land) are depreciated over time.
To know when you can officially call yourself a 'millionaire ', duh!
Exactly! :)
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I discount our house about 7-8% off what I think it's value is, to reflect actual equity in a house post commission.
Or more realistically I put what it was when we bought it then never update it :-)
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For the house, when I update it, I tend to used the purchase price multiplied by the percent change in average home sale in the area between the date of purchase and the date of the calculation.
I do not trust Zillow's numbers in the least. I do not know if it is lack of data in our area but things will be all over the place. Huge jumps/drops in value in 1 month (during more stable times), adjacent houses where one is clearly more desirable than the other priced the opposite of expected, and zillow estimates jumping when a home is put on the market to something close to the listing price.
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What are you trying to gain by constantly updating your house value? I don't see the point for most people.
I guess I could see the point if you're planning to cash out home equity to downsize. But otherwise it's not a liquid asset that you can really use to accelerate FIRE plans.
I'm planning to stay in my house for 20+ years. I keep my home valued at-cost in my spreadsheet just to avoid confusing it with my investable assets that are constantly changing in their utility for FIRE. Sure, I could add ~$150K of net worth gains since I bought the house, but that doesn't get me a day closer to FIRE.
Note: If you dive into the business accounting world, many business assets are valued similarly at-cost and are not frequently updated for mark-to-market valuations. The biggest difference would be that buildings (but not land) are depreciated over time.
To know when you can officially call yourself a 'millionaire ', duh!
Exactly! :)
I didn’t factor that in, and it fully explains why I don’t care. I bought my house about two years after I hit the millionaire mark. I might have cared more if I bought the house earlier.
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I find value in calculating my total net worth, if only because it makes me think about the options I have other than "stay in this house until I die". But the estimates are only as good as the data they have and the algorithms they use, so I take it with a grain of salt.
My spreadsheet has three "total net worth" numbers - the "conservative" estimate using our refi appraisal, the "liberal" estimate using the Zillow Zestimate, and an average of the two I call "split the difference". I use "split the difference" as our official number for threads on here and what I think of in my mind as our total net worth.
In the end, none of these numbers are absolute, so I just use what is most useful to me.
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Yes, I do.
Every month I update my Net Worth in a spreadsheet I have kept current since 2005. I have a Column for all financial investments and a column for the house value (using Zillow). I realize it is not a perfect number, but it does give me trend over time. I add up these two Columns to give me a good idea of my Total Net Worth. The house is about 9% of my total Net Worth. House is paid for.
I do not understand why people would not track home value (with whatever tool they like best) in a Net Worth calculation. If I were to sell my home (become a renter) and put the proceeds into the bank, I would then count those proceeds towards my net worth. Because those dollars are a in a less liquid form of a home does not mean they do not exist. Also, if I died tomorrow and my estate was liquidated and given to my heirs - the value of the home would also count as part of my estate.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
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Yes, I do.
Every month I update my Net Worth in a spreadsheet I have kept current since 2005. I have a Column for all financial investments and a column for the house value (using Zillow). I realize it is not a perfect number, but it does give me trend over time. I add up these two Columns to give me a good idea of my Total Net Worth. The house is about 9% of my total Net Worth. House is paid for.
I do not understand why people would not track home value (with whatever tool they like best) in a Net Worth calculation. If I were to sell my home (become a renter) and put the proceeds into the bank, I would then count those proceeds towards my net worth. Because those dollars are a in a less liquid form of a home does not mean they do not exist. Also, if I died tomorrow and my estate was liquidated and given to my heirs - the value of the home would also count as part of my estate.
I don't ignore my home value, I just don't include it in my NW because it's not meaningful unless and until I extract equity from it.
I don't just look at it as an asset because no matter what, I need to live somewhere, and the decision to move is usually dictated by life factors and not primarily financial factors.
For example, my current house has jumped a lot in value, but not as much as the other houses in my area. So although my NW has increased, my buying power has actually decreased in terms of housing.
I would have to relocate to a lower cost area in order to actually gain any wealth from my home equity increase, which is a huge lifestyle choice, which I'm very unlikely to do, since DH's career and my medical team are here.
So unless someone's life circumstances actually permit them to easily downsize or relocate or rent indefinitely in a market where rent stays cheaper for some reason, then the equity in a house is essentially meaningless, even if they do sell.
In terms of renting, I still conceptualize it as housing cost. So say I have a paid off house and rentals in my area are about the same cost as ownership, then selling my house will essentially just fund renting. I'm still not ahead unless I find a way to rent for less.
Regardless, I stay on top of my house value, but only relative to alternative housing options in the event that that I find an attractive way to pull out equity.
Only then, only if it *makes sense* to profit from my equity gains, will I add it to my wealth level because until then it's just potential.
So it's not that I ignore my house value, I just don't mentally lump it in with my wealth because it's not useful to me as wealth.
That said, as I mentioned, my condo will never appreciate relative to the market. I basically can't downsize because it's a one bedroom apartment, and it would be more expensive in any other city in the country. So in my particular case, the only way I could feasibly tap into my equity would be a HELOC or refinance, which I might consider, but that wouldn't add to my NW, that would allow me to do some leveraged investing, which could raise (or lower) my NW.
Now, I *did* recently cash out equity in my last place when I downsized to this place. So I'm not talking theoretical, I already did this. When I lived in the old place, the equity was useless to me. Totally useless. There's also no way I would have downsized and liquidated it unless I actually wanted to live in the smaller, cheaper place. Luckily for me, the smaller place was always my dream home, so it was a no brainer to cash out when I could.
I don't think either approach is wrong, it's all just mental math, but I thought I would share how I still closely track my home value, but don't consider it as part of my overall wealth unless the lifestyle factors line up to actually access it. Which in my case, they did.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
But yes, obviously I account for taxes when I factor in how much I'll need to take out of a tax deferred account. I can't say "I'll need 40K" and then only take out 40K.
It's the same way that if I sell something through Etsy and they take a cut, I don't consider the sale price to be my take, I consider the net sale price to be my take.
Home value minus costs is simply the estimate of the net sale value.
But yeah, all costs should be factored in to everything.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
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I'm another one who doesn't include home equity in my net worth. I just act like I'm renting, then when I eventually sell, I'll have a nice surprise.
Of course, in my mind I am always aware that I could get $1M out of my house, and that's what keeps me sane whenever I think "can I really live off my investments for the rest of my life?"
I actually do count enough of the equity to zero out the remaining mortgage loan. So I sort of pretend both sides of that equation don't exist.
I plan to live/retire off my liquid investments, so that's the number I pay attention to.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
I plan on converting my whole tIRA tax free via Roth conversions, so no, I do not worry too much about taxes when considering the balance ;-)
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Starting today, I will update our net worth using the average of 2 or 3 real estate websites *0.9 - outstanding loan as discussed in this thread. So, good discussion!
Here is why I find that useful. It lets us know if we should:
be trying to do a cash out refinance (interest rate refinance is another matter)
Sell either house
Rent out both houses completely and buy a third
Sell both houses and rent
Uh reverse mortgage I guess? Doesn't seem realistic
Accept jobs elsewhere
Do nothing
Today I realized for the first time out two properties would gross $1M, and net $350k, if we sold both. Our monthly rent would gross $5500, and net $2500, if we left and rented both completely. They are in nearby areas with completely unrelated economies. I am actually surprised by some of those numbers, which is why I think this has value going forward. I have been adding up NW every three months.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
I decided to use 0.9 multiplier, but would not calc taxes on an IRA. Why: I could sell the house anytime with no cap gains and no penalty. It is actionable. Who knows what tax rate an IRA would be at a decade in the future, or whether I could do a Roth conversion ladder. Discounting the IRA is not actionable for at least another 5 years.
In case if using the number to refinance, I prefer to be on the safe side as I think in general it is better to be patient and conservative, so *0.9 achieves those goals.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
I think the tax as living expense makes more sense, but another difference is that there are simple maneuvers I can take to minimize/eliminate my tax burden when I'm in the withdrawal stage with the current rules in place. With the current state of affairs if I want access to my home equity, it's going to be through the sale of my home which virtually requires me to deal with a member of the blazer cartel broker and agent who are gonna take their 6%.
Either way, it is mostly academic for me. I do it because it is already part of my NW spreadsheet, so calculating my net worth with and without home equity takes virtually no effort, so I keep it up for the data.
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The whole original question shows that many people try to use their NW as a FIRE calc, and this results in them modifying their NW in the process to do that FIRE calc. NW is NW, and catalogs all the assets and liabilities that you have as part your estate. And managing that estate is much more than just a FIRE calc.
A FIRE calc is a cash flow analysis that certain assets of yours will help fund, but probably not fully. For example you can have social security, pension with no cash value, alimony, heck maybe your child even sends you extra money every month you want to reflect. But those aren’t assets in your NW.
NW and cash flow analysis are two different things and in my mind it’s cleaner to keep the two separate.
And yes I use Zillow since I can link it into my advisor’s NW tracker and have it automatically updated. And it seems like a reasonable estimate of the value of my house.
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
Did you read my whole reply?
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I've seen several people say they discount their home value by 6% or more to account for realtor commissions and other transaction costs. For those in that boat, do you also discount your IRA by some percentage to account for the tax you'll pay to access that money?
That's not a fair comparison.
I think it's a perfectly fair comparison. If you're going to say "my $1 million house only counts $920k toward my net worth because of closing costs," seems like you'd also need to say "my $1 million IRA only counts $850k toward my net worth because I expect to pay an average of 15% income tax on my withdrawals."
Of course it makes no sense to completely ignore these factors when planning for the future. For purposes of net worth tracking I just haven't seen many people do this kind of discounting across their whole portfolio. The gross asset value seems to be the more common metric for net worth.
Did you read my whole reply?
Yes.
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I've been waiting on replying to this because a) I include the Zillow value and b) had a pending appraisal for a cash out refi.
I didn't know that redfin and realtor had values. Zillows latest valuation of our house was $620k, but redfin and realtor were $540k and $555k. So based on this thread I would have expected it to land somewhere in the middle.
Appraisal came in at $650k. Shrug.