Defining Home Equity

resnickf 2016-09-30 23:49:48 UTC #1

In discussion re: treatment of seven assets, I would disagree with statement that home equity is the difference between appraised value and debt. I think the correct definition is market value and debt. A home's appraised value could be more or less than market value.

dcandmc 2016-10-01 13:33:58 UTC #2

Ok, so other than putting your home on the market and getting offers, how do you determine "market value"? The answer is, you get an appraisal that's specifically geared towards determining the market value.

resnickf 2016-10-01 18:22:56 UTC #3

Beyond a formal appraisal (which can be either a "drive-by" or a full appraisal), there are many other methodologies to determining a home's market value. Appraisals can be done for different reasons, e.g. mortgage, refinancing, tax appeal, all of which might not reflect a true market value, which I define as the price one could reasonably expect to be able to sell the property. Certainly online websites like Zillow should be considered. Our local newspaper publishes weekly home sales and market comparisons can be made. Contacting a real estate agent is another option. To simply indicate that that the appraisal is the answer is too limiting.

dcandmc 2016-10-01 18:50:25 UTC #4

You are right that the correct definition of "equity" is the home's market value less debt secured by the home. But again, unless you actually put the home on the market and solicit bids, how are you going to determine market value? You are worried that a home's appraised value "could be more or less than market value." Yes, that's right, but the same holds true for any of the other methods of determining market value that you mention: Zillow, newspaper listings of home sales, consultation with a real estate agent, or anything else.

In my first response to you I said that an appraisal specifically geared towards determining market value (not for mortgage purposes, or refinancing, or a tax appeal, or "drive-by") could be done. In my opinion, while certainly not the only way to determine market value, that would give the most accurate result (and also be the most expensive). Once more: unless you actually market the home and receive bids, anything you do to try and determine market value will just be an educated guess, with some methods being more reliable than others.

Brian_Boswell_SFC 2016-10-01 20:16:14 UTC #5

Greetings resnickf:

I believe you are referring to the slideshow here: https://www.savingforcollege.com/articles/how-7-different-assets-can-affect-your-financial-aid-eligibility-716?page=3. I appreciate the feedback (really!). I will pass this, and the discussion herein, along to the original author for discussion.

I'm not a home equity expert, but this is what I grabbed off Google:

Home equity is the value of ownership built up in a home or property that represents the current market value of the house less any remaining mortgage payments. This value is built up over time as the property owner pays off the mortgage and the market value of the property appreciates.

So it sounds like your definition is correct, you just need to figure out what works best as a proxy for market value. Good stuff.

Thank you,

Brian Boswell
VP, Research & Development

This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.

resnickf 2016-10-01 20:18:22 UTC #6

I think we fully agree with each other and do understand the issue. I don't remember precisely what the abbreviated guidance said, but I simply wanted to make sure that it was understood that specifically getting an appraisal and incurring any kind of cost was not necessary. I would have preferred the term market value and let the applicant determine how to get a market value figure.