How Net Worth Is Calculated
Net worth equals total assets minus total liabilities. Assets include cash, investments, retirement accounts, and real estate. Liabilities include mortgages, car loans, credit cards, and other debts. Financial planners and institutions commonly list primary residences as assets when calculating net worth. The Federal Reserve's Survey of Consumer Finances tracks household net worth, including home equity as a major asset category. Forbes Advisor explains how net worth is defined and calculated.
Home equity is the market value of the home minus the outstanding mortgage balance. If a house is worth 400,000 dollars and the mortgage balance is 250,000 dollars, equity is 150,000 dollars. Equity grows as the mortgage is paid down and as property values rise. Because equity is a liquidatable asset in theory, many net worth statements include it. However, selling a home involves costs, time, and market risk, which affects how useful that number is for comparisons.
Arguments for Counting Your House
Real estate is often the single largest asset for many households. In the United States, homeownership remains a core part of household wealth. The Federal Reserve's Financial Accounts of the United States show that households hold trillions of dollars in housing equity. Including home equity in net worth gives a more complete picture of total wealth than investment accounts alone. Federal Reserve data tracks household assets, including real estate.
Counting your house helps you compare your position with benchmarks. Net worth percentiles published by the Federal Reserve and research groups often segment households by home equity. For example, homeowners in the top quartile of net worth typically hold large shares of wealth in real estate. Excluding the house can make a homeowner appear far less wealthy than they are on paper. This matters when evaluating retirement readiness, loan applications, or financial planning strategies.
Arguments Against Counting Your House
A house is an illiquid asset, meaning it cannot be quickly converted to cash without selling or borrowing against it. Transaction costs, agent fees, taxes, and moving expenses reduce the net proceeds from a sale. If you rely on home equity to cover emergencies or retirement shortfalls, you may face practical limits. Some financial models exclude real estate to focus on liquid net worth, which better reflects day-to-day financial flexibility. Investopedia defines liquid net worth and why it differs from total net worth.
Market volatility also affects whether you should count your house. Property values can fall during recessions or local downturns, just as stock prices do. Overestimating home value can inflate net worth and lead to overly optimistic spending or borrowing plans. Some advisors recommend using conservative estimates, such as recent comparable sales or professional appraisals, when including real estate in net worth. Others suggest separating primary residences from investment properties to avoid double counting or misjudging risk.