Does a house count toward net worth, and how to value it

A house counts toward net worth, on the asset side at what it would sell for today, with the mortgage on the liability side at its remaining principal. The house's real contribution is the difference, its equity, and the estimate that produces it is only as good as the method behind it: a recent sale of a comparable home nearby, or an online estimate reduced by what selling would cost, updated once a year and not more. The part of the equity that moves every month is the mortgage balance, which falls by the principal in each payment, and that is the number to watch, because it is the one the household controls.

Why the house is counted, and why some people leave it out

Net worth is everything you own minus everything you owe, and a house is owned. Leaving it out understates net worth by the equity, which for many households is the largest single number on the sheet. The argument for leaving it out is that the equity cannot be spent without selling or borrowing, and that the estimate is soft. Both are true, and neither is a reason to omit it; they are reasons to record it honestly and to read liquid net worth alongside the total. See What counts as an asset and a liability for the rule, which puts the house and the mortgage on separate lines.

Value it by a method you can repeat

1. Start from what comparable homes have sold for in the last six months: same neighborhood, similar size and age, actual sale prices rather than asking prices. Two or three sales give a range.
2. Or start from an online estimate, which is the same comparison done by an algorithm, and treat it as a range rather than a figure.
3. Reduce the figure by the selling costs if you want the number the household would actually receive: agent commissions and closing costs commonly take several percent of the price.
4. Write down the method and the date, and use the same method every year, so that a change in the figure is a change in the market and not a change in the estimate.
5. Update once a year, or when a comparable sale makes the old figure obviously wrong. Monthly updates measure the estimate's noise, not the house.

A worked example, gross and net of selling costs

Either column is a legitimate figure as long as it is used consistently. The gross figure is what the house is worth; the net figure is what the household would walk away with. A household that records gross and later sells will see net worth fall by the selling costs on the day of the sale, which is not a loss so much as a cost that was always there.

The two ways the equity moves

The equity changes for two reasons that should be read separately. The mortgage balance falls every month by the principal portion of the payment, $6,400 a year in this example, and that is money the household kept, as surely as a deposit into savings. The estimate moves with the market, up 3% in a good year and down in a bad one, and that is neither earned nor lost until the house is sold.

Two-thirds of this year's equity growth came from the market and a third from payments. Next year the market's part may be negative and the payments' part will be a little larger, which is why the balance is the number to watch and the estimate is the number to record.

What the equity is not

Equity is not cash. It cannot pay a bill, cover an emergency, or be moved to a better use without a sale or a loan against it, and a loan against it is a new liability. A household with a large net worth that is mostly home equity can still be short of money in a bad month, and the figure to check for that is liquid net worth, which leaves the house out on purpose; see Liquid net worth versus total net worth, and which one to watch.

Common mistakes

• Recording the purchase price. The house is worth what it would sell for today, not what was paid.
• Recording the asking price of the neighbor's listing. Sales, not listings; a listing is a hope.
• Updating the estimate monthly. The estimate's noise becomes net worth's noise, and the mortgage's steady progress disappears inside it.
• Netting the mortgage into the house's line. The mortgage balance is the part you control, and it deserves its own line.
• Reading the market's part as saving. It is not repeatable, and it reverses.
• Leaving the house out entirely. The equity is real; the honest response to its softness is a method and a date, not omission.

Common questions

Should I include my house in my net worth? Yes, at what it would sell for today, with the mortgage as a separate liability. Leaving it out understates net worth by the equity. For how long the household could last without income, read liquid net worth, which leaves the house out.

How do I value my house for net worth? From recent sales of comparable homes nearby or from an online estimate, reduced by the selling costs if you want the amount you would actually receive, by the same method every year, with the method and the date written down. Update once a year.

Should I subtract the selling costs? Either way is fine if it is consistent. Subtracting them records what the household would walk away with; not subtracting them records what the house is worth. Most people who might sell within a few years subtract them.

Does the mortgage count against my net worth? Yes, at its remaining principal, on the liability side. It falls every month by the principal in each payment, and that fall is the household's own contribution to its net worth.

What about home improvements? They are spending when they happen, and they change the estimate only if a comparable sale says so. A $30,000 kitchen rarely raises the sale price by $30,000, and the honest treatment is to record the cost as spending and let the yearly estimate find its own level.

How Zypper handles this

Zypper keeps the house and the mortgage as two accounts and charts the result. The mortgage connects like other loans and contributes its remaining balance to the liability side of net worth, updating as payments post; the house is a manual account whose balance you set to the estimate and update once a year, so it counts toward net worth without a live feed and changes only when you change it. The net worth page nets the two with every other account and charts the total over time, so the mortgage's steady fall and the estimate's yearly step both show, and the usual causes of a figure that looks wrong are a manual balance that needs updating or a connection that expired. See Net worth tracking, Manual accounts, and Supported account types for the details, or get started with Zypper to put the house on the sheet.