Equity is calculated by subtracting your mortgage balance from your appraised value. To calculate your equity then, you have to know what your current balance of your mortgage is, and what your homes appraised value is. If you have multiple loans on your home, you need to add those together. Getting your mortgage balance is the easy part, but it is the appraised value that takes a little work. In a divorce, spouses use the equity as a negotiating factor in how they split their assets and so forth, and depending on what works best for each different divorce, I have seen it split multiple ways, and not just 50/50. In this post, I will share with you some of the biggest mistakes I have seen between divorcing clients from a lenders angle (I am NOT an attorney, I do not intend on become one, and I do not give legal advice…I simply share my views and opinions as I have come across them as a Divorce Lending Professional).
Appraisal to Calculate Division of Equity in Divorce
First, it’s important you know that the value of a home is subjective in nature, and therefore you will get a varied calculation from one appraiser to another, from one Realtor to another, and a HUGE difference from one owner to another. 
This variable is what causes the most controversy in settling on equity during a divorce.
Whether you need to do a cashout refinance of the home after divorce to pay the leaving spouse their equity, or refinance to roll in an owelty and remove the leaving spouse from the mortgage and title of the home, or no refinance at all, spend the money to hire a non-biased third party appraiser to get your home’s value. Definitely do not use Zillow, Trulia or any other online value estimator…that could be your #1 biggest mistake in the entire decision making process.
Problems with Some Realtor Values
Many of my past clients ran into trouble after the divorce was final because they asked a Realtor friend or random Realtor to help them find their home value. The biggest issue is, Realtor friends are biased, and they sometimes cannot help but inject their feelings into the process…spells trouble. The random Realtor issue is, there are way more Realtors in this industry faking it (do not know what they are doing) vs the ones that really study their craft and know what they are doing, and the ones that are faking it are not likely to admit their shortfall or simple come clean and say, “this is a very important situation you are in; trying to get a value for your home so that you can come up with a legitimate equity value to split, and I am not comfortable getting a true value”. In the end, they give you a value and if they are wrong, they give you the excuse that the appraisers do not know what they are talking about. Get your homes value the right way.
Pay for An Appraisal
If you are using an attorney, you are paying thousands of dollars for their service, another $400 – $500 is well worth it. The cost of an appraisal in Texas is typically $425-$550 for homes in the $0-$500,000 price range…as long as your home isn’t $2,000,000+, you are likely to get an appraisal under $1,200 or so. Regardless, I have seen clients fail in their plans horribly. The intent was refinancing their home after divorce where they needed their home to appraise at a given dollar amount. They either estimated the value using online sources or a Realtor during the divorce because they needed to get the cash in a refinance to pay off the leaving spouse and when the home appraised with our appraiser, the value came back much less. The person stuck with the “short end of the stick” was the spouse keeping the house…in a recent example, I had a client stuck with $20,000 less equity when all the smoke cleared. Call me, and I’ll refer you an appraiser. Order an appraisal before you finalize your divorce. Do not use online value estimators, and some Realtors can pose a risk to your equity.
For details on removing your spouse from the mortgage or title after divorce.
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