I work with a lot of people who think they have equity. A lady I spoke to yesterday, Sue, owes $250,000 and she thinks her house would sell for $275,000.

Does she have equity?

First, she has to realize, that the $257,000 valuation may be too high. If you really have to sell a house, you may get less than the broker's price opinion.

Second, closing costs include realtor commissions, as well as title fees and settlement fees.

Closing costs can be 6% to 8% of the purchase price.

So does Sue have equity?

No.

And you may not either.

In another scenario you may have no equity even though you think you do — is when there are no sales in your neighborhood. If there are no sales in the last few months, the listing prices have little bearing on your house's value.

A subscriber has a house that supposedly is worth $500,000. But nothing has sold for a year there. Is this $500,000 valuation meaningful?

No, it's not. If nobody is making an offer, then that house is not worth $500,000. It is of indeterminate value. It may be worth $150,000. Who knows?

This line of reasoning can sometimes be used to convince the bank to accept your short sale even if the price seems too low. What is too low when there are no bids?

And if you haven't already done so, please watch my video on short sales that explains how to do your short sale, keep good credit, avoid IRS tax liability, and hopefully avoid personal liability.

This is a screen shot of my video –>

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