Expert: Lisa Webber - 10/21/2007

Question
QUESTION: Hello- I bought a house in December 2006 and have a friend help with
some of the mortgage payments. Now he is thinking of moving out of state
and is demanding a share of the home equity. how do we go about
handling this - Zillow actually shows the house is 16k less in value. It hasnt
been a month - please help

ANSWER: You didn't mention where you are located, but in most areas around the country, homes have actually gone down in value since December 2006.  Zillow is not an accurate source for valuations; you can use it as an estimate but it can be off by tens of thousands of dollars.  What zillow does is take a general average of the area and many of the homes that they use for "comparables" may not really be comparable to the subject property.  Have your friend hire a licensed real estate appraiser to give you a written estimate of the probable market value of the home.  After you have your written estimate, you will see how much equity is in the home if any.  If by some chance you were to show "equity", you would then need to take off the selling expenses which include closing costs and Realtor fees, as if you were to sell the home because that part of the equity would go to expenses and is not profit for either of you.  Then you will have all the data you need to see if your friend actually has any equity in the home.

---------- FOLLOW-UP ----------

QUESTION: I am in washington state. Kent in king county 98031 code. Thanks

Answer
I'm all the way across the country from you in Maryland so I'm not familiar with market conditions in your town, but I was doing some research for you and found a blog where they are discussing your area of Kent, Washington and you may find the information very interesting.  It looks like you may be correct, according to this blog entry and the comments, the author says prices have come down in Kent since March 2007, as much as $100,000 on some large homes.  This blog entry is September 30, 2007.  

http://bubbletracking.blogspot.com/2007/09/if-only-i-waited-in-kent-washington.h

Because I don't know this author or your area, I can't give you an "expert" opinion on it, but I wanted to share the information with you while you are doing your research.  

Don't let this panic you as historically real estate has gone up over time so if you are planning on staying there for awhile, you should be fine.  As far as equity to pull out, I don't believe there would be.  You can always hire a licensed appraiser to double check, which usually costs about $300-$400, or I could give you the name of a good Remax agent near you that could do a CMA for you.  This is a Comparable Market Analysis which is what you would have a Realtor do before selling your house and most Realtors will do these for no charge as a service to you.  They will take recent sales and compare them to your house to come up with a market price that they believe your house could sell for.  Neither of these methods is going to be foolproof as they are "estimates", but they will get you pretty close as far as a value that they believe a ready, willing, and able buyer might pay in your neighborhood. You could use both methods so your friend feels comfortable that they are accurate and you can share the blog and maybe have your friend do some google searches to see for themselves what is going on in the market. Pricing and valuation is not an exact science, but more of an art so you'll have slight variances between Realtors and Appraisers, but they will be close.  

Your friend may want to just give their portion of the home to you and move out, providing you would be able to cover the mortgage.  Or your friend could keep the investment if you both agree and a renter could help pay the other portion of the mortgage payment.  If you end up needing to sell, the Realtor can help you with that as well.  If there is no equity, you would either need to come up with the extra money at settlement or request that the lender do a "short sale" where they would accept less than the amount due.  These can be tricky, but an experienced Realtor can guide you through the process.  I hope this helps, please let me know if I can help with anything else!