IMO you should include any mortgage debt but not the value of the house you live in. Thats how I did it. The house you live in is a liability, because you always have to live somewhere. You should include a conservative market value and any mortgage debt for an investment property.
I kind of get where you're coming from and see you're trying to be conservative, but I think your calculation has serious flaws when it comes to taking a snapshot of financial position.
For example:
Person A has $200K cash, $600K of investments (stocks and bonds) and owns a house worth $550K (with $150K remaining on the mortgage).
Person B has $200K cash, $600K of investments (stocks and bonds), has $50K in outstanding student loans and has always rented a home.
In your calculation:
Person A has a net worth of $650K ($200K + $600K - $150K).
Person B has a net worth of $750K ($200K + $600K - $50K).
I have a very hard time believing Person B is in a better financial position than Person A.