Home Equity Is Funny Money

We closed on our house just about exactly a year ago for $700k, and Redfin now has our home value pegged at over $900k. Redfin’s estimate is not necessarily reliable, but it’s a data point.

Before buying our home, I saw PF bloggers and other interested parties discuss their net worth calculations online, and they often accounted for their home equity/the value of their home in odd ways. These other people sometimes left their home’s value out entirely or omitted any equity above the mortgage amount or used a lower value for their home. This was totally puzzling to me. I thought I would have just grabbed a value from Redfin/Zillow and plugged in that number on a monthly basis. That seemed to be the most accurate/up-to-date.

I still think it’s important to include some home value in a net worth calculation, especially if the home has a mortgage on it, as ours does. But I definitely understand now why people don’t want to plug Redfin/Zillow/whoever’s supposed home value into their net worth calculations, because I haven’t been.

For the last year, I’ve used 91% of our home’s appraised value from April 2021, which is more or less what I thought we could realistically sell it for after closing costs. I told myself I would start increasing the home value after a year—perhaps values would stabilize by then.

I now agree that: 1) I don’t want my net worth jumping all over the place based on the whims of Refin/Zillow’s algorithm, 2) my home’s high value doesn’t seem real/reliable in a fast-changing market (maybe it will drop?), and 3) we’re not planning to sell anytime so it doesn’t really matter.

But now that the first year is up, I do need to decide how to update our net worth on May 1. It doesn’t seem accurate to keep the value anchored in 2021, either. Perhaps I’ll use 91% of $850k, which our house has been solidly above, according to Redfin/Zillow, for many months.

How do you account for your home’s value in your net worth calculations?