Happy New Year! I hope yours is off to a great start. This month’s practice tip comes
to you after a heartbreaking case where the parties were counting on proceeds to
pay for, among other things, their child’s senior year college tuition, only to find out
the projected profit was not calculated correctly. Turns out, there were no proceeds,
and their son had to withdraw from school.
When a marital home or investment property is part of a divorce, equity is often
treated as a simple math problem. Small oversights in how equity is calculated can
materially change a client’s net outcome—sometimes by tens of thousands of
Dollars.
Below are three common areas where equity is frequently overstated or
Misunderstood.
1. Assuming Market Value – Mortgage Balance = Net Equity
Online estimates or informal broker opinions often get used as stand-ins for value.
But equity is what remains after all costs to sell or transfer the property. Failing to
account for transaction costs, concessions, or market-specific pricing adjustments
can create unrealistic settlement expectations and stalled negotiations.
2. Overlooking Deferred Maintenance and Non-Standard Improvements
Deferred maintenance—aging roofs, HVAC systems near end-of-life, foundation
concerns—directly affects value and marketability. Likewise, unpermitted work or
highly customized improvements (garage conversions, enclosed patios, ADUs built
without approvals) and solar liens may not add value and can reduce buyer demand
or require costly remediation. These issues should be surfaced early and reflected in
valuation discussions, not discovered mid-transaction.
3. Payoff and Proceeds Miscalculations
Mortgage balances alone do not tell the full story. Equity calculations are often
distorted by:
● Incorrect payoff figures (especially on HELOCs or adjustable loans)
● Missed prorations for taxes, HOA dues, or rents
● Outstanding liens, judgments, or unpaid contractor bills
● Prepayment penalties or transfer fees that surface late
● Deferred principal balances from loan modifications, forbearances, etc.
Each of these can materially reduce net proceeds and should be verified before a
settlement is finalized.
Practice Tip:
Before relying on a headline equity number, ask: “If this property were sold or
transferred tomorrow, what would the client actually walk away with?” Engaging a
Certified Divorce Real Estate Expert to prepare a property for market early —before
positions harden—can prevent renegotiation, post-decree disputes, and unhappy
surprises at closing.
Real Estate Issue to Spot This Month: Equity Red Flags
Before relying on a stated equity number, check whether:
☐ The property value is based on an online estimate or informal opinion
☐ Deferred maintenance or unpermitted / non-standard improvements were
ignored
☐ The payoff figure excludes HELOCs, secondary loans, solar liens or updated
interest adjustments
☐ Taxes, HOA dues, rents, delinquent payments or other prorations have not
been verified
☐ Liens, judgments, or transfer and prepayment fees may reduce net
proceeds
Why it matters:
Any one of these can materially change what a client actually walks away with—and
may surface too late to fix once terms are finalized. As a CDRE, I can help walk you
through equity calculations in cases where selling vs keeping the house is still not
decided.
