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Net Worth – Do You Include the House?

I do include our house in my net worth calculations. I noticed that this is a slightly controversial issue in the personal finance world, but I don’t know why. Isn’t it pretty easy to simply deduct the home equity from a calculation to arrive at a new amount if you rather not include the house? Here is why I include our home in my net worth calculations.

Net Worth – No Value, But Debt?

If I did not include the estimated value of our house, my general net worth calculations would be way off if I did include the remaining mortgage debt. I have heard people say that it is more realistic that way, but in what world would you ever take into account the debt for something without taking into account its value too?

If I had $65,000 of credit card debt, that is pure debt with no inherent sales value. If I have $65,000 of mortgage debt, that is debt that could be repaid by selling the house itself. Right?

I understand that I may not be able to sell my house immediately, but in that “what-if” scenario, then why would my mortgage debt need to be paid back immediately? Maybe I simply don’t understand.

Net Worth – No Value, No Debt?

The other scenario I have seen acts like the house doesn’t exist. Like when you leave a paid-off car out of the calculations. I am sorry, but if you have a mortgage, that is a liability that should be taken into account. I simply think that a low estimated sales value should be taken into account too. If your house or car is paid off, sure, feel free to leave it out of your calculations if you want, but I personally know that I could sell my car in less than 3 days if I had to for at least $5000. I think that is something that adds to my net worth.

Net Worth Calculations are Personal

All of that said, I know that everyone likes to use a system they like. I have no problem with that at all, but then I should be able to use whatever system I like too. Right? Now, if we were comparing two different net worths, obviously we would need the same set of rules. I just don’t think it is that hard to look at whatever numbers a person uses and fit them into a new criteria.

What do you think? Do you include a home’s equity (negative or positive) in a net worth calculation?

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27 comments to Net Worth – Do You Include the House?

  • I have heard both arguments. Those who don’t count it say they might not be able to sell it for the value it is assessed at, others say they will need a place to live no matter what, but I agree with you. It is an asset, and it should be counted (along with the remaining debt). If a person is upside down in their house, that should definitely be counted in their net worth, so why not when it is a positive asset?

  • I definitely include the house. If I have to include the mortgage i’ll include the asset associated with that debt. I think it helps that here in Canada we did not have a housing crash and houses are still selling well (the market is strong).

  • I absolutely include the house. I actually do a modified calculation that would subtract out the estimated realtor and associated selling fees, because I define my net worth as the cash I would have if we liquidated our assets. With that modification, the value of the home currently shows up as negative on our net worth statement although we are technically above water.

  • I include my house in my net worth calculations as well as the real estate that I hold as rentals. As you mentioned, this is a personal calculation and allows me to follow trends. I don’t change the value that I have assigned any of these real estate values whether up or down. Again, I am simply looking at a trend to see if my net worth is increasing or decreasing. Then I try to figure out why and make adjustments accordingly.

  • I would include the house. It’s an average family’s most valuable asset and I definitely feel like net worth would be incomplete if it didn’t account for your mortgage.

  • I include the value of the house, but I am very conservative at what I value it at, too. When I bought my house I put 30% down on it. Since then I have been paying extra on it. As a result, I have quite a bit of positive equity in my home so why wouldn’t I include it?

  • Yes, I absolutely include our houses, especially since I’ve been actively paying them down as a way to build equity. At any point in time, I can sell the house and get cash back. Yes, the absolute amount is not fixed (ie, I may get less than I want), but the end of the day, if I sell my house, I will walk away with cash in hand. If something that can yield cash if I choose to sell it is not an asset, then I don’t know what is.

    Personally, I don’t roll up the value of my stuff, like jewelry, collectibles, etc, but those are assets too. If poop hit the fan, I could raise money pretty fast if I sold some of our rugs, furniture, etc. I mean if you die tomorrow, your assets are the sum of your stuff less liabilities, so that includes the contents of your house, your cars, everything. Most people probably have more assets than they track, except in the cases where people have some imaginary house value as their net worth (Ie, the 2005 price, vs the 2011 price),

  • The smartest way would be to include the amount you could get if you had to sell the home immediately. Take about 20% off the appraised value, and then another 6% off that for realtor fees. I think if you gave yourself about 70% of the true market value of the house, that’s a good guess as to what you could liquidate the house for very quickly.

  • Brian

    I don’t include my house in my calculation, but then again, I am lucky to not have a mortgage on it (so I don’t have that large negative value pulling me down).

    I do like Kevin’s idea since it would give you an idea if you ahd to unload the house ASAP.

  • Kevin is right on the money when he suggests that you should include your house at the amount you would get if you sold it today (not purchase price, not municipal assessment) and then subtract realtor and even legal fees.

    For a few years I was calculating our net worth using some arbitrary number that I believed to be market value, but the reality is that when you go to the bank they will use a conservative amount and subtract any fees.

  • I’ve heard this both ways, and for my situation, (I dont own a house) It doesnt matter. However, I’d have to say that I’d probably include it, but realizing that it’s not a liquid asset and cant be converted into cash easily or quickly

  • Of course you add the value of your house in your net worth statement. It’s an asset that you own and balances the liabilities that you owe. This is common accounting practice.

  • I look at it 2 ways:

    1) Technically, yes – home equity should included. I’d view this as net estimated proceeds from home sale minus mortgage balance due.

    2) Realistically, no I don’t look at it that way personally. Sure, technically it’s a part of net worth, and I’d calculate it as noted in #1 above. However, I also view a home as a place to live and not really an investment that will be providing you with cash flow for retirment.

  • I don’t calculate my net worth often, but I do include my mortgage.

  • It seems that the majority do incude the value of their house but some at a very reduced rate. I personally value our house at $130,000 for our net worth calcs even though it may technically be worth a bit more than $140,000.

  • To be brutally honest I do not include property as part of my net worth. Reason is – I need a place to live.
    I am only counting the money I can spend and will do (in the future) rental income.

    The reason – I am looking for a financial independence, i.e. maintaining current life style.
    The home I live in – part of it.

  • I include the house when I calculate my net worth. I’m sure I overvalue it a bit considering all the cost associate with selling the place. We’re not planning to sell anytime soon so I think it’s ok to overvalue it a little. ;)

  • Although I do include my home in net worth, some financial documents require that you exclude a personal residence. If I did, I would also exclude the mortgage. My thinking is if I can not have the benefit of equity I should not have the burden of the debt.

  • Worth including the perceived equity in your house with a 20% discount. It’s just a numbers game anyway, so it doesn’t really matter.

  • Great topic. In my net worth spreadsheet, I actually have a line that includes my home equity and one that doesn’t. I look at it two different ways- home equity is true net worth. If you ever had to sell, you could pocket that equity (less closing costs, etc). On the other hand, it is about as illiquid an asset as you can get. It’s tough to sell, it takes a long time to sell and you may not get anywhere near what you’re estimating, especially if you must be a “motivated seller”. So, i keep tabs on both scenarios.

  • I include my house in my net worth calculation too! While it’s not as liquid as stocks, it still have value.

    Perhaps those that refer to net worth not including a house should consider call their calculation liquid net worth… :)

  • when it’s convenient for me yes, when it’s not i don’t. it should be part of the net worth because it’s an asset that can be liquidated for monetary value.

  • @Money Reasons, I like that. Net worth versus liquid net worth. That’s pretty much it right there.

  • Yes, I think the house needs to be discounted because there is a cost to sell the thing. Commissions, moving fees, closing costs, etc. So you can’t just assume the full value of the house into your net worth calculation because it’s likely much less.

  • We do include the value of the house, and we should probably update it more frequently than we do.

    At first it makes sense to include it (I mean, we put 20% down, that money didn’t just disappear).

    Now it makes sense because we’re even (if we sold it, we could pay off the mortgage and that’s it, oh the joys of a housing crash).

  • Leaving the home out of net worth calculations becuase you can’t guarantee the sales price doesn’t really make sense to me. Are you going to leave out the value of your stock market investments as well? I mean you can always have an idea about what something will sell for, but it is never guaranteed until the deal is done.

    The real problem with counting your home in your net worth is when it is a huge piece of the pie. Then again that would be the same problem if you had a huge position in a particular stock, etc.

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