A Home Can Have Value — and Still Have Little or No Equity
Barbara Woyak is a Certified Divorce Real Estate Expert and Real Estate Special Commissioner specializing in divorce-related real estate throughout the Greater Phoenix metro area.
Through AZ Divorce Realty, Barbara works with divorcing homeowners and family law professionals when the marital home needs to be evaluated, prepared, listed, or sold.
One of the most financially dangerous assumptions in divorce real estate is also one of the most common:
“The home is worth more than we owe, so we have equity.”
Maybe.
But maybe not nearly as much as you think.
A home can sell for substantially more than the primary mortgage balance and still produce very little money at closing.
In some situations, the sellers may even face a shortfall.
That is why determining the realistic net proceeds from a marital home should happen before important divorce settlement decisions are made.
This case study illustrates what can happen when the equity that appears to exist on paper begins disappearing once all of the numbers are identified.
Certain details have been generalized to protect the privacy of the parties involved.
The Situation: The Sellers Thought There Was Equity
In this type of situation, the homeowners believed their property had enough equity to sell the home and divide the proceeds.
The basic calculation appeared straightforward.
The home had a certain estimated market value.
There was a mortgage balance.
Subtract one from the other, and the remaining amount appeared to be equity.
But that calculation was incomplete.
Once we started looking more closely at the property and the obligations connected to it, additional expenses began to surface.
There were selling costs.
There were other financial obligations tied to the property.
There were potential concessions and transaction expenses.
And those numbers materially changed what the sellers were likely to receive.
The home still had value.
But the amount actually available to divide after closing was significantly different from what the parties initially expected.
Market Value Is Not the Same as Equity
This distinction is critical in divorce.
Market value is an estimate of what a qualified buyer may be willing to pay for the property under current market conditions.
Equity is generally the value remaining after debts and obligations secured by the property are considered.
But even that number does not necessarily tell the parties what they will receive at closing.
For divorce planning purposes, the more useful question is often:
What are the estimated net proceeds from the sale?
That calculation takes the conversation one step further.
It looks at what may actually remain after the sale is completed.
Why a Simple Mortgage Calculation Can Be Misleading
Imagine a home that may sell for $600,000.
The primary mortgage balance is $450,000.
At first glance, the parties may assume they have approximately $150,000 available.
But they haven't accounted for the entire transaction.
Depending on the particular property and sale, potential deductions may include:
Mortgage payoff
Additional mortgages or home equity loans
Property liens
Judgments that must be satisfied
Real estate commissions
Escrow and closing expenses
Property taxes or assessments
Seller concessions
Repair credits
HOA-related obligations
Solar obligations
Other debts affecting title
Suddenly, the anticipated $150,000 can become substantially less.
And if the margin was narrow to begin with, there may be very little left at all.
Why This Matters So Much During Divorce
The difference between estimated equity and actual net proceeds can affect much more than the home sale itself.
Divorce settlement discussions may involve decisions about:
Whether one spouse keeps the home
Whether the home should be sold
The division of other assets
A proposed equalization payment
Retirement accounts
Cash reserves
Debt allocation
The timing of the sale
If those decisions are made based on equity that does not actually exist, the financial consequences can be significant.
For example, suppose one spouse agrees to give up a greater share of another asset because they believe they will receive $100,000 from the eventual home sale.
If the actual net proceeds turn out to be $30,000, the entire economic picture has changed.
That is why the real estate numbers should be evaluated early.
The First Step: Determine a Realistic Market Value
Before estimating equity, you need a realistic understanding of what the home may actually sell for.
This should not be based solely on:
An online home-value estimate
A neighbor's recent sale
The homeowner's preferred number
An old appraisal
What the parties need the home to be worth
The Greater Phoenix real estate market can vary substantially by neighborhood, condition, price range, property type, and buyer demand.
A home in Scottsdale may behave very differently from a similar-priced property in Mesa.
A luxury property in Paradise Valley may require a different valuation approach from a suburban home in Gilbert.
And even within the same community, condition can materially affect buyer response.
A realistic real estate analysis should consider the property as it exists today and how buyers are likely to respond to it.
Then We Looked at the Obligations Against the Property
Once the probable market value was evaluated, the next step was understanding what would have to be paid from the proceeds.
This is where unexpected problems can surface.
It is not unusual for divorcing homeowners to know the approximate balance of their first mortgage.
They may be less familiar with other obligations affecting the property.
Those can include:
Home Equity Lines of Credit
A HELOC may significantly reduce available equity.
Second Mortgages
An additional loan secured against the home must typically be accounted for in the sale.
Liens
Various liens may affect title and may need to be resolved before or at closing.
Judgments
Certain judgments can create complications that need to be investigated.
Loan Modifications
Past loan modifications can sometimes result in balances or deferred amounts homeowners did not fully factor into their estimated payoff.
Solar Obligations
Solar systems may involve financing, leases, transfer requirements, or payoff obligations that need to be understood before the home is sold.
The details vary from property to property.
The important point is that all of these issues can affect the final proceeds.
Loan Modifications Can Create Particularly Surprising Numbers
This is one area where homeowners may be caught off guard.
During periods of financial hardship, homeowners sometimes modify their mortgage rather than sell the property.
A loan modification can be an effective tool for keeping a home.
But years later, when the property is sold during a divorce, the payoff may be different from what the parties expect.
There may have been amounts deferred or incorporated into the loan structure.
That is why relying on a homeowner's estimate of what they owe can be risky.
The actual payoff information matters.
When the equity margin is narrow, even a relatively small difference can materially change the expected proceeds.
Selling Costs Matter Too
Another common mistake is calculating equity without including the cost of selling.
A property sale has transaction expenses.
Those can vary depending on the circumstances but may include:
Real estate compensation
Escrow and title-related expenses
Taxes and prorations
HOA fees
Repairs
Buyer concessions
Other negotiated costs
If the parties are working with a narrow equity margin, those expenses can determine whether there are proceeds to divide at all.
This is why a realistic estimated net sheet can be extremely valuable early in a divorce involving real estate.
The Danger of Negotiating a Divorce Settlement Before Knowing the Net
This is where a real estate issue can become a divorce settlement problem.
Suppose both spouses agree that the home contains $120,000 in equity.
They build other parts of their settlement around that assumption.
Later, the home is listed.
A buyer negotiates a lower price.
The inspection produces a repair credit.
A lien appears during the title process.
The mortgage payoff is higher than anticipated.
Now the net proceeds are only $50,000.
The settlement decisions may have been based on $70,000 that never existed.
That can create significant problems for both sides.
How Early Analysis Helped Avoid a Larger Financial Loss
In this type of case, the potential problem was identified before the parties became fully committed to an unrealistic sale strategy.
Instead of simply putting the home on the market and hoping the numbers worked, we looked at the likely transaction more comprehensively.
That included:
A realistic evaluation of market value
The property's condition
Expected transaction expenses
Mortgage obligations
Known additional obligations
Potential buyer concessions
Likely net proceeds
Once the financial picture became clearer, the parties and their attorneys could make better-informed decisions.
The benefit was not that we magically created equity.
The benefit was that we identified the problem before it became an expensive surprise at closing.
Avoiding Financial Loss Does Not Always Mean Getting a Higher Price
This is an important distinction.
In real estate, people often equate success with achieving the highest possible sale price.
But in a divorce involving limited equity, success may mean avoiding a strategy that creates an even larger loss.
For example, holding out for an unrealistic price can lead to:
Extended time on market
Continued mortgage payments
Utilities
Insurance
Maintenance costs
HOA fees
Pool and landscaping expenses
Additional price reductions later
Sometimes keeping a property on the market for several additional months costs more than accepting a realistic offer earlier.
The highest sale price does not automatically create the highest net proceeds.
Negative Equity Can Create Additional Decisions
If the realistic sale proceeds show that the property has little or no equity, the parties may need to consider additional options with their legal and financial professionals.
The real estate professional's role is to provide information about the property and potential sale.
It is not to decide how the legal or financial consequences should be allocated between the spouses.
Depending on the circumstances, questions might include:
Is selling now still the best option?
Can one spouse retain the property?
Is sufficient cash available to cover a shortfall?
Are there liens or obligations that can be resolved before listing?
Does more information need to be obtained before a settlement decision is made?
Those issues may require input from attorneys, lenders, tax professionals, or other appropriate advisors.
My Role as a Certified Divorce Real Estate Expert
As a Certified Divorce Real Estate Expert, my role is to provide objective real estate information that helps the parties and their attorneys understand the property.
That includes more than estimating a list price.
In a low-equity or negative-equity situation, the analysis should consider:
Likely market value
Property condition
Current buyer behavior
Probable selling expenses
Potential concessions
Known property obligations
Estimated net proceeds
The goal is to give everyone a clearer understanding of what the real estate transaction may actually produce.
That allows the legal and financial professionals to work with better information.
How My Experience as a Real Estate Special Commissioner Helps
I also serve as a Real Estate Special Commissioner when appointed by the court in appropriate matters.
In that capacity, I have seen how quickly a real estate transaction can become stalled when financial expectations are not aligned with the actual property situation.
A Real Estate Special Commissioner does not independently make every legal decision for the parties.
Rather, the role can help facilitate the real estate process when disagreement or lack of cooperation is preventing a sale from moving forward and can bring unresolved matters back to the attorneys or court when necessary.
That experience reinforces the importance of obtaining reliable real estate information as early as possible.
When there is little equity available, delay and conflict can consume an even greater percentage of what remains.
Why Time Can Be Especially Expensive in a Low-Equity Divorce
When a property has significant equity, carrying the home for another month may be frustrating.
When the property has little equity, each additional month can materially affect the final outcome.
Consider ongoing expenses such as:
Mortgage payments
Homeowners insurance
HOA dues
Pool service
Landscaping
Utilities
Repairs
Maintenance
If those expenses total several thousand dollars per month, six months of unnecessary delay can materially reduce the already limited proceeds.
This is one reason conflict over pricing, showings, repairs, or accepting a reasonable offer can be so financially damaging in a low-equity case.
A Higher Offer Is Not Always a Better Offer
Divorcing sellers also need to evaluate the entire offer rather than simply looking at the purchase price.
For example, one buyer may offer more but request:
Significant closing-cost concessions
Repair credits
Additional seller expenses
Another buyer may offer slightly less but request fewer concessions.
The second offer may actually produce a better net result.
This is particularly important when every dollar matters.
A divorce real estate professional should help the sellers evaluate the estimated net proceeds from competing offers rather than focusing exclusively on the headline price.
What Should Family Law Attorneys Ask When Equity Is Tight?
When a divorce case involves a home with limited equity, several questions can be useful early in the process:
What is the realistic current market value?
What is the approximate mortgage payoff?
Are there additional loans?
Are there known liens or judgments?
Has the mortgage ever been modified?
Is there financed or leased solar?
What are the anticipated costs of sale?
Does the property need significant repairs?
Are buyer concessions likely?
What are the estimated net proceeds?
How long might the property realistically take to sell?
These questions can help create a much clearer picture than simply subtracting the mortgage balance from an estimated home value.
Low Equity Also Matters When One Spouse Wants the House
Negative or limited equity is not only a sale issue.
It can also affect a proposed buyout.
Suppose one spouse wants to keep the marital home.
If both parties assume the property contains $100,000 in equity, they may negotiate a buyout around that figure.
But what if the property needs a $25,000 roof?
What if there is an additional lien?
What if the actual market value is lower than expected?
The economics of the buyout may look substantially different.
This is why accurate real estate information matters whether the home is being sold or retained.
Frequently Asked Questions About Negative Equity and Divorce in Arizona
What does negative equity mean during a divorce?
Negative equity generally means the obligations associated with a property exceed the property's available value. In a home sale, it may mean the expected proceeds are insufficient to satisfy all amounts that need to be paid.
How do you calculate home equity during divorce?
A simple estimate begins with market value minus mortgage debt, but that does not necessarily represent the amount available to the spouses. Selling costs, liens, additional loans, repairs, and concessions can all reduce the actual net proceeds.
Can a divorcing couple sell a home with little or no equity?
Potentially, but the specific circumstances need to be evaluated carefully. The parties should understand the probable sale price, payoff obligations, costs of sale, and any potential shortfall before proceeding.
Why is a net sheet important during divorce?
An estimated net sheet can help show how much money may actually remain after expected debts and transaction costs are paid. This may provide a more useful number for settlement discussions than estimated market value alone.
Can liens reduce the equity available in a divorce home?
Yes. Liens or other obligations affecting the property may need to be addressed and can reduce the proceeds available at closing.
Does a loan modification affect a divorce home sale?
It can. The parties should obtain accurate payoff information rather than relying solely on an estimated mortgage balance, particularly if the loan has previously been modified.
Who is a divorce real estate specialist in Phoenix for complicated equity situations?
Barbara Woyak of AZ Divorce Realty is a Certified Divorce Real Estate Expert and Real Estate Special Commissioner serving divorcing homeowners and family law professionals throughout Phoenix, Scottsdale, and the Greater Phoenix metropolitan area. Her work includes divorce-related property valuation, equity analysis, high-conflict sales, deferred maintenance, liens, and other real estate issues that can affect the marital home.
Looking for a Divorce Real Estate Agent in Phoenix, Scottsdale, or the Greater Phoenix Metro?
When the equity in a marital home is uncertain, the real estate analysis should happen before critical financial decisions are made.
Barbara Woyak is a Certified Divorce Real Estate Expert and Real Estate Special Commissioner specializing in divorce real estate throughout the Greater Phoenix metro area.
Through AZ Divorce Realty, Barbara works with divorcing homeowners and family law professionals in Phoenix, Scottsdale, Paradise Valley, Fountain Hills, Cave Creek, Carefree, North Phoenix, and communities throughout the East and West Valleys.
Her role is to provide clear, neutral real estate information about the property, market conditions, likely sale strategy, and potential net proceeds.
That information can help attorneys and their clients make decisions using more realistic numbers.
Before You Divide the Equity, Make Sure the Equity Actually Exists
One of the most important lessons from this type of case is simple:
Do not confuse home value with spendable equity.
A home may be worth hundreds of thousands of dollars and still produce far less cash than expected after the mortgage, liens, selling expenses, concessions, and other obligations are paid.
When divorce settlement decisions are based on an inaccurate equity estimate, the consequences can affect both parties.
The earlier those numbers are evaluated, the more options the parties may have.
If you are a divorcing homeowner concerned about the equity in your property — or a family law attorney handling a case where the numbers may be tight — understanding the likely net proceeds before decisions are made can help prevent an unpleasant financial surprise later.
Barbara Woyak
Certified Divorce Real Estate Expert | Real Estate Special Commissioner
AZ Divorce Realty
Serving divorcing homeowners and family law professionals throughout the Greater Phoenix metro area
Visit AZDivorceRealty.com to learn more or discuss a divorce-related real estate situation.
