# Value of your home for Net Worth



## Addy (Mar 12, 2010)

For those who calculate their net worth and own real estate, how do you calculate the value of your property?

I am curious as I've read some people say they adjust their net worth statement as their house price varies, or they meticulously track their property value and I am not sure how one can do this with any great certainty (assuming we're talking market value).


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## MoneyGal (Apr 24, 2009)

I know a loooooooooooooot of real estate agents and mortage brokers, and I live in a "hot" area, so people are always updating me on the value of my home (I get e-mails like "here is a list of properties similar to yours that sold recently").


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## brad (May 22, 2009)

To me this falls into the realm of counting your chickens before they're hatched. I don't include the value of my home in my net worth, because it's misleading. 

Certainly I think tracking your home's current market value precisely is a pointless exercise (unless you're getting ready to sell), because really what your home is worth is what someone will actually pay for it, and you don't know what that will be until you sell it and someone makes you an offer that you accept. It could be tens of thousands of dollars higher or lower than its current market value.

[EDITED to note that my comment was directed at the original post, and not to MoneyGal, whose response came in while I was writing mine!]


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## MoneyGal (Apr 24, 2009)

(I am avoiding finishing something at work)

I include the asset because I have a corresponding liability; my mortgage.

FWIW I also calculate the taxes that would be due on my RRSP if my spouse and I died today (and hence I had no spouse to roll 'em over to), and I'm not sure I know anyone else that does this - but those taxes are more real, in my view, than a phantom gain on my home equity.


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## brad (May 22, 2009)

MoneyGal said:


> (I am avoiding finishing something at work)
> 
> I include the asset because I have a corresponding liability; my mortgage.


Me too (on both counts -- avoiding something at work and including the asset to counterbalance the liability).

But I simply use the value of the house when I bought it (i.e., what I paid for it), figuring/hoping that I can at least get that much back. I wouldn't want to assume anything more than that, and I don't see any signs that we paid too much.

I don't pay much attention to my net worth in general because it's not a very useful figure to me anymore. It was when it was negative: moving toward positive territory was a very strong motivator to me. But now I can't really see the utility in knowing my net worth; it's more important to my heirs in case I get hit by a truck tomorrow.


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## bean438 (Jul 18, 2009)

I don't include it at all. Partly because a house is not an investment, and if it were it would be a liability not an asset. 
The other reason is I don't do net worth either. What the hell is the point?

At the end of the day, money makes the world go round and all that matters is cash flow. 

Grocery clerk: that will be $25 sir. 

Me: my house is worth x amount of $ 
Clerk: that will be $25 sir. 

Me: my net worth is x amount of $ 

Clerk: security!


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## Addy (Mar 12, 2010)

Okay I'm glad I'm not the only one who thinks house value can vary drastically! If I do end up calculating the value of our house into our net worth, I would most likely put a conservative value on it based on what similiar houses in my area sell for, knowing that it could be much less or much more. Thanks for explaining!


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## OhGreatGuru (May 24, 2009)

If you live in a province that uses market value assessment for property taxes, use that figure from your tax bill. Obsessing over it (or your net worth for that matter) is pointless in a volatile real estate market. But you shouldn't simply ignore it, as it is often most people's largest investment.


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## Dana (Nov 17, 2009)

I include the current market value of our home (we live in a very active area, real estate speaking, so current market value is readily available) and I deduct the mortgage, real estate fees and legal fees we would have to pay if we were to sell. 

Likewise, with RRSPs, I consider the market value less the tax liability of freeing up that money if we needed to. 

Although our house is not an asset that generates income, I am a hope-for-the-best-expect-the-worst sort of person, so I like to figure out what we would have available to live on in a worst-case-scenario.


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## OptsyEagle (Nov 29, 2009)

brad said:


> To me this falls into the realm of counting your chickens before they're hatched. I don't include the value of my home in my net worth, because it's misleading.


Ditto.


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## bean438 (Jul 18, 2009)

I will add that I consider the equity in my home as a possible tool (leverage) to generate a cash flow.

Other than that, a house is not an investment.

I need to live somewhere, so do i like the house, can I afford it, is the neighbourhood good, are the neighbours good?


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## Addy (Mar 12, 2010)

I buy that a house isn't an investment. I am interested to hear what those who don't include their house in their net worth because it's not guaranteed or the price is so volitile, etc because really almost all investments are like that are they not? So on that thought equities could not be considered an investment.


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## MoneyGal (Apr 24, 2009)

The defining characteristic of an investment is something that you hope to sell at a profit. 

I put my house in my net worth statement because it is a store of value, it has a value, I have a mortgage against it, and...just because. But I have no plans to sell it, whether at a profit or not - so for me, my house is not an investment. The NWS is a statement of net worth, not a statement of investments, if that makes sense!


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## Ben (Apr 3, 2009)

I need to use some value, because I have a mortgage to offset on my spreadsheet. For me, purchase price is the most reasonable number to use.

I don't like to use market value:
-It is a nice feeling to know that the increase in net worth is due to my own saving power, not fickle market forces.
-It might be nice watching the net worth go up quickly in hot real estate markets, but equally not fun watching it go down in potentially cool markets.
-I'm not intererested in watching the real estate market obsessively.


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## CanadianCapitalist (Mar 31, 2009)

I put the home's approx. current market value in the net worth statement. I'd argue that it really doesn't matter. The purpose of net worth statement is to give us an idea of where we stand wrt to our plan for financial independence. A net worth statement is approximate anyway. It has pre-tax and post-tax assets, liquid and illiquid assets etc. The point is to pick a method and use the same method to compute net worth every year. 

I'd argue that however you value it, a home belongs in the NWS. If you have a mortgage and are paying it down with your savings, you are working on increasing your net worth and your NWS should reflect that.


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## Jon_Snow (May 20, 2009)

CC's last post expresses how I feel about this topic perfectly.


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## Ben (Apr 3, 2009)

CanadianCapitalist said:


> The point is to pick a method and use the same method to compute net worth every year.


All good points, especially this one.


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## billiam (Aug 24, 2009)

Seems to me that some people have forgotten what Net Worth is, Assets - Liabilities. Whether you consider your principal residence an investment or not is not relevant. 

As for valuation current market or historical cost is fine, just be consistent as other poster(s) have mentioned.

Just my 2 cents.


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## MoneyGal (Apr 24, 2009)

I will add my $0.02 to yours so now we have four. What a gain! 

Except it isn't realized, and perhaps no one would be willing to pay $0.02 for my opinion (or yours, for that matter). 

How do I track my net worth NOW? Do I include that $0.02 or not? So confused.


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## Spidey (May 11, 2009)

I think you have to use your house in a net worth statement, otherwise your net worth standing would be severely distorted. (I've never seen a financial planning book that did not include real estate in net worth.) The best way to value your house is the way the appraisers do it - see what comparable houses sell for in your neighborhood and adjust the price slighlty up or down depending whether one house has a bigger yard, finished basement, etc. The other way would be to use your annual property tax assessment, but these are often inaccurate.


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## Square Root (Jan 30, 2010)

Would certainly include value of real estate for loan application,etc. But unless you plan on selling in short term I would ignore. In my own spread sheets I only track investible assets which excludes real estate. This is despite the fact we own 3 properties which are mortgage free. I concede this might be different if we had mortgages.


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## Leading Edge Boomer (Apr 5, 2009)

It easy for me to get a ballpark figure as to what my home is worth. I live in a condo townhouse and there is a small but steady turnover. Not hard to get info on what the units are selling for.

I do count my home as part of my net worth, because it is.

When looking at my assets I think of them as :

Liquid---cash or can be quickly turned to cash.

Partial Liquid---my home is in this category as I would expect it to take some time to sell it for cash

Non-Liquid--a company pension plan would fit in here. It is definitely a financial asset, but I do not control it, and I can not sell it, or withdraw all the money from it at once.


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