For the first time in over three years, I estimate that we have full positive equity in our home.
This is a good thing, but it's bittersweet considering that we put 20% down on our home in 2007. Part of the downside was automatic and would have been in any market (see below) but that's still a lot of equity lost otherwise.
I estimate the top-line value (what a contract would say) of our home using four inputs:
- Tax estimates – The city tax bill gives the value of our home, and it's generally been pretty accurate compared to market estimates
- The bank estimate – Our lender has always allowed us to pseduo-begin a re-finance application, at one point where it would give you a ballpark estimate of your home.
- Zillow – Even though this changes regularly, we use this as a fraction of the calculation.
- The ‘sniff test' – I look at comparable sells in the neighborhood and will give a manual adjustment based on what I think is realistic based on what's going around us.
The 7.75% catch
Now, I mentioned above that some of the drop in value is expected. That's simply a circumstance based on how I do the accounting.
My net worth is what I would expect to get if we cashed everything out. Since there are selling costs associated with the sell of a house, on day one I automatically wrote down 7.75% of the expected sell value of the house, as I would expect a realtor fee of 6%, miscellaneous filing and other ‘fees' that come about, as well as a cushion for any improvements or such that might need to be done to get the place sell ready. Many people don't do this, but I feel this is a more true cost based on how we calculate our net worth.
If you removed the 7.75% cushion, we were never technically underwater based on any estimates I had made. But, we did fall into what I considered ‘treading water' where writing off the 7.75% brought us to a negative value, meaning simply, that had we sold our house, we would have owed money after paying the mortgage, the realtor, and other fees that would have been necessary.
This has been the case in my net worth spreadsheet for the last 37 months. But, this month we actually show that we would walk away with money. If home values stay stable, we will continue to build this number simply by the equity we add with our mortgage payment each month. Hopefully, the value would rise on top of that and we will eventually return to having a decent cushion.
This is worrisome but it doesn't eat me alive, simply because I never viewed our house as an investment. We don't plan on selling our house anytime soon, and we can afford the payments. It might take a couple of years, but we'll return the equity back that we put in originally, and as we continue to make payments and the principle amount increases each month, and if the market continues to strengthen (which I believe it will), equity will flow back quickly.
Either way, even though it's small, it's nice to see a positive number in the ‘house' part of our net worth statement.
Really, it's about time.