I don’t include the value of my home as part of my net worth. I count it as “one house unit” because we will always have to live somewhere. (Whether in a house, a rental apartment or assisted living evenutally.)
Zillow sends me a monthly “Zestimate” which I figure is reasonably accurate since they have access to the MLS and also sales of comparable homes in the area. But apparently people have complained that Zestimates are over-estimated. Zillow got into the home buying/ selling business a few years ago but shut that down after losing money.
Homeowners have been complaining about their “Zestimate” for many years. Some have even (unsuccessfully) taken their complaints to court.
Zillow says that its published home-value assessments are a “neutral estimate of the fair market value of a home,” but an inaccurate Zestimate can mislead buyers and sellers about how much a property is really worth (not to mention how much nearby homes are worth by comparison).
The formula comprises public information as well as data from the multiple listing service and input from homeowners. The company claims its error rate for homes that are off the market is 7.2 percent, and just 1.74 percent for on-market homes. [end quote]
I can vouch for that. Long story short, we bought a house and acreage over 10 years ago to build our “dream home”. Zillow still lists our home value at what we bought 10 years ago even though that house no longer exists*. I can say since they went to range estimates they have gotten better but still inaccurate.
* the house we bought now sits on our neighbor’s property that his son/grandkids live in. Not sure if Zillow even know that either.
My neck of the woods still has home prices rising. A very close family friend died just before my Dad. She left her house to her three kids, my age. This week it sold. They put it on for $480k and get $510k before commissions and fees. This is typical in wealthier parts of CT and MA. Although that is a median value for a home in this area, the larger homes are getting an even greater differential.
Google and Meta are playing around with even claiming any profits. There are freebies on offer at other companies as if it were 1999.
Some parts of the country will be happy. In other parts of the country, the markets have turned, and people are unhappy.
Not sure I quite understand that. It certainly is an asset, less any mortgage or home improvement loan you may have.
As you might expect from a curmudgeon finance/accounting guy, I use a spreadsheet to calculate my net worth. For my home, I use the low end value from Zillow (radical in politics, conservative in finances).
Fidelity has a nice tool to track your net worth except for one item they’re missing. I’ve complained about it for decades, but they just shake their fist a me and tell me to get off their parking lot.
That item is deferred taxes on my IRA, a not insignificant number. So that’s why I track it in a spreadsheet (if you can’t do it in a spreadsheet, it ain’t worth doing).
I include all my material assets and liability (deferred taxes) so the Wolf cubs will have an idea of their windfall (yes, they know about the spreadsheet AND our last will detail) when they dump everything after they spread my ashes.
Not sure why they want me to take up skydiving, though.
From time to time my tax clients ask me about the income tax they would incur on the sale of various pieces of real estate. They invariably have no idea what the property is worth, so I head off to Zillow to get whatever idea I can.
My immediate area is filled with tract houses built in the 60s through the 80s. Zillow’s estimate is pretty good for those. Lots of comps that are very comparable make it easy to give a sanity check.
But when you start looking at the custom homes in the fancy areas, often with varying views of the ocean or across a valley or something like that, the estimates get much less accurate. Same for houses on larger lots or with acreage out in the desert.
It’s still a useful tool, but you need to know the tool’s strengths and weaknesses.
This being METAR, I’m sure that some will relate to the subject of inheritance tax. Even though DH and I don’t have children I still want to maximize my estate which will go to my beloved sister after my death (in the event that I die before both my husband and my sister - a real possibility considering that I have already had double breast cancer and open-heart surgery).
DH and I live in WA State, which has very high estate taxes and is also a community property state. One way to reduce the estate tax is to have a Revocable Living Trust (RLT) with a Credit Shelter Trust (CST) and Q-Tip trust embedded in it.
The CST is set up to bypass the estate tax after the death of the surviving spouse. The spouse is the beneficiary (also the trustee in our case) but the CST is NOT counted as part of the spouse’s estate. Without the CST, my estate would be added to DH’s estate which would kick the total into a higher tax bracket when he dies.
In 1988, I moved in with my boyfriend (we were married in 1993). In 1990, I bought his house and paid him a down-payment and mortgage. (He paid off his bank mortgage.) When I created my RLT in 2000, I titled the house to the RLT. When we moved to WA State, I sold the house in DE and bought the house in WA with the same money at the same time. This establishes a chain of custody which shows that the house is 100% mine and NOT community property. We created an Agreement of Separate Property which we had a lawyer witness and notarize.
This ensures that 100% of the value of the house will go into the CST, not 50% as usually happens in a community property state.
The CST says that the trustee will decide what will happen with the house. The trustee (DH) can allow the beneficiary (DH) to live in it as long as he wants or to sell it for his exclusive benefit (not for the benefit of anyone else, including a subsequent wife). After DH’s death the CST goes to my sister.
If DH dies before me that was a lot of wasted effort. But people should realize that state estate taxes can be imposed at high rates and much lower exemptions than federal estate tax.
I include the market value of my home minus the real estate commission and other transaction costs associated with a sale. As you know, I minimize the amount of money I have tied up in the historically poorly performing asset classes like real estate and bonds.
My real estate agent sends me a monthly email with the market value of my home as well as what I would realize in a sale after transaction costs. His market value closely tracks Zillow’s estimate which is not surprising. My condo complex has 150 nearly identical units and 3 or 4 seem to change hands each year. There is always recent sales data to inform estimated market values.
Zillow’s monthly rental value also closely tracks what units are renting for. There are large rental apartment complexes within a half mile of my home with real time data on rental rates on Apartments.com. It’s very easy to do a rent vs. buy analysis.
I take no pride in home ownership. I’m merely purchasing housing services in a neighborhood that meets my needs. I’m only willing to “buy” if I have a good prospect of getting the unleveraged return of the S&P 500 on the very illiquid investment in a home. That’s a high bar for residential real estate in the US. And over the past 40 years, my “rent vs. buy” calculation has only turned positive for “buying” during a short window in 2011-2012 (the tail end of the 2008 home mortgage meltdown.) Absent that, I’d still happily be a renter.
Skeptics always question my math with the following logic. “Seattle has had 6% average home price appreciation over the past 30 years. How is it possible that you could have made more money by not owning a Seattle home and renting instead”.
The problem is that I have no way to purchase the “average” Seattle home. At least 50% of the homes in Seattle are appreciating at less than the 6% per year market average over the past three decades. And some of those homes with the inferior appreciation may be in “good” neighborhoods you’d be happy to reside in. You won’t know unless you do the arithmetic.
If I bought just one stock in the the S&P 500, I’d only have about a 20% chance of matching or beating the S&P500 return over the past 30 years. I suspect you’ll see a similar distribution of returns in the residential real estate market. Goofyhoofy’s fantastic multi-decade 25 or 30-fold return on his Boston condo was much like my 240-fold return on the DELL stock I purchased in 1992. Few people are going to see anything like that. Most are not even getting the market average return, in either real estate or the stock market, if they’re buying individual stocks or individual homes – that’s just arithmetic.
The other problem is that real estate comes with very high transaction costs (i.e., 3%-5% on the purchase of a home with a mortgage, and 8%-13% on the sale of a home.) The area where I live in WA State happens to have a 1.7% “franchise tax” on real estate sales that places it at the high end of the range. The average homeowner buys three homes over their lifetime, losing a large portion of their investment to transaction costs.
The stock market would be a terrible place to invest if it came with real estate’s transaction costs. (And it was prior to the May 1, 1975 SEC ban on fixed price stock brokerage commissions.) Today you can buy an S&P 500 index fund for a 0% commission and an annual expense ratio of 0.015%, that’s $150 on a $1 million investment. You’d pay $130,000 in transaction costs selling a $1 million home in my area.
Over the past 40 years, I’ve saved at least $1 million by doing a “rent vs.buy” calculation to inform my real estate decisions. And that $1 million compounded into millions more since it was invested in the stock market rather than a poorly appreciating single family home.
You always leave out the “leverage” part. A stupendous percentage of homes are bought with leverage. Buy a $250,000 condo, you have $50,000 in the game (or less). Sell the $250,000 condo 10 years later for $500,000, you’ve made $450,000 (less “rent”), not $250,000. That would not have been an unusual scenario over the past decade.
Leverage. Curiously, it doesn’t often work the other way even though it theoretically could. And in the case of a stock, does.
I agree, Zillow numbers are only an estimate but it’s a reasonable guess. Probably based on location and sq footage. Most reliable in a development with dozens of similar houses and some sell every year. Still they vary in many respects like swimming pool, finished basement, lot size, and maintenance. Only a ballpark number.
Don’t forget to include real estate in your estate planning.
If you can realize your financial goals without the risk of leverage, that’s always going to be preferable. And I have seen the effects of leverage working “both ways, and magnifying your losses” if a real estate crash knocks you out of the box, both in Houston when I lived there in the mid-1980’s and everywhere during the 2008 home mortgage crisis. So it seems to happen with about the frequency of a 50% crash in the stock market – but since I’m not a leveraged stock investor, I can ride out and survive that.
Excluding both home equity and 529 account balances.
Note that even my “all in” number does not include things like my cars or household possessions.
On the home equity question, while it’s true that we have to live somewhere, we can sell the house to either downsize or move into some form of rental housing if it comes down to it. The number we use is the lesser of the Zillow Zestimate and the county auditor’s valuation.
As for the 529s, since that money is special purpose for my kids and their educations, it’s not money I would consider tappable for health care or ordinary living expenses.
As for why I don’t put a value towards household possessions, it’s largely because I tend to drive cars into the ground instead of trading them in. Earlier this year, for instance, our 2003 Honda Accord gave up the ghost with a dead transmission. We recently replaced it with a 2019 Nissan Rogue. Aside from the cars and the house itself, I’m not sure what else we own in terms of physical items that would be worth much more than sentimental value…
I have had friends who are realtors. Mostly they say don’t pay attention to Zillow, because 1) they’re talking their book but also 2) it’s wildly wrong much of the time.
We’re in a real estate craze here, or at least we were a couple months ago, and a couple down the street listed the property at $769k. According to Zillow that was reasonable. A month later they dropped it to $699. So did Zillow. A week ago they dropped it to $659. You will be shocked to find that Zillow followed right along. (The original price, the $769k was pretty close to the Zestimate based on comps, I guess, except th8is is a a mediocre house with a backyard that’s 10 ft deep looking into a monstrous hillside. No back yard. No side yard. Terrible driveway for taking out the trash, blah blah blah.
As I sit here today it’s at $625k
Kitchen needs updating (black, white, and steel appliances!), wall to wall carpet, and so on.
Now I don’t know if the realtors tried to talk them down first or whether they just went along with it in order to get the listing, but these folks (nice people) had a seriously “inflated” opinion of their house and now the listing is somewhat “damaged” because nobody wants it at any reasonable price.
Yes, there are plenty of houses in the neighborhood that would go for $800k, and a few for $2m - $3m, but Zillow doesn’t capture any of that until somebody wth a brain takes a look. (I took a look; there was an open house the first week. Blech!)
Anyway, maybe it works in a world of great conformity, whether everybody takes care of the property in the same ways, updates as appropriate, and doesn’t choose purple paint for the bedroom, but a swing of $150k in 2 months (and still not sold) sort of confirms how loopy some of this can be. (I note that Zillow thought buying and flipping houses based on their estimate was a business and found out otherwise pretty quickly.)
