How does negative equity actually work?

Question

How does negative equity actually work in a homes listing price? because it seem like house price can be anything the owner list it as. how does negative equity actually decrease the value of the home? like how do you track that data?

Chris Seveney · Answer

@Paul Liu

Negative equity is the outcome when prices drop and a borrower owes more than the home is worth on a property

While you can sell a home for any price you want, that does not mean someone will buy it at that price

If you are trying to sell your car for $50,000 but everyone else is selling the same or similar car for $20,000 why would anyone buy your overpriced car? Same goes for housing.

Eliott Elias · Answer

Do you know what equity is?

Kenneth Garrett · Answer

@Paul Liu

Back in the 2008 crash, values of homes plummeted and mortgages were difficult to get.  Most homeowners ended going through foreclosure.  They couldn’t sell there property because they owed more then it was worth.  So if they did sell they would need to bring money to closing because the money received from buyer would not be enough to pay off the balance of their mortgage.

Paul Liu · Answer

So how do home prices fall in a real estate crash? Because it seem like the homeowner can sell the house for whatever price they want.

Scott E. · Answer

Your home equity is the difference between the value of your home, and what you owe on your mortgage.

So for example if your home is worth $500,000 and you have a loan on it with a balance of $350,000, then your home equity is $150,000. Or in other words, you have $150,000 worth of equity.

A negative equity situation would be if your home was worth $500,000 and you have a loan on it with a balance of $550,000. In this example you have negative $50,000 in equity. Meaning if you sold your home, you would have to come out of pocket $50,000 at the closing table (in reality it would be even more due to commissions and closing costs).

How does negative equity actually work?

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