What is ARV in real estate? How to calculate after repair value from comps

What does ARV mean?

ARV answers one question: if the work you plan is done, what will a retail buyer pay? It is a future value, so it is always an estimate. It is different from the house's value today, from an appraisal, and from an online estimate.

The as-is value is what the house is worth now, in its current condition. ARV minus the as-is value tells you how much value your repairs add, which is not always more than they cost. Kitchens and bathrooms in a dated house usually add value. A pool in a market that does not want pools may not.

How to calculate ARV with comps

The comparable sales method is the standard. You find homes like yours, after renovation, that recently sold, and adjust their prices for the differences. These rules of thumb keep comps honest.

1. 1

   Describe the finished house

   Write down what the property will be after your work: bedrooms, bathrooms, square footage, garage, and finish level. ARV is for that house, not the one standing there today.

2. 2

   Pull sold comps

   Find sales from the last three to six months within about half a mile to a mile, in the same neighborhood, style and size range (roughly 20 percent larger or smaller). Use sold prices, not list prices.

3. 3

   Keep only renovated comps

   Look at listing photos and descriptions. A comp with an original 1980s kitchen is an as-is comp, not an ARV comp.

4. 4

   Adjust each comp to your house

   If a comp has something yours will not, subtract its value from the comp's price. If it lacks something yours will have, add it. Never adjust your house to match the comp.

5. 5

   Weigh the best comps most

   The closest, most recent, most similar comp should count most. Average the adjusted prices, or weight them, and round down.

6. 6

   Check with price per square foot

   Divide each comp's price by its square footage, average it, and multiply by your square footage. If this check disagrees with your adjusted average by more than a few percent, find out why.

7. 7

   Get a second opinion

   Ask a local agent for a broker price opinion or ask your cash buyers what they would resell it for. If they all come in lower, believe them.

ARV adjustments: a worked example

Example: the subject will be a renovated 3-bedroom, 2-bath house of 1,600 square feet with no garage. Three renovated comps sold within half a mile in the last four months. The adjustment values below are assumptions for this example: $90 per square foot of size difference, $10,000 per bathroom, and $15,000 for a two-car garage. Set your own values from paired sales in your market, where two similar houses differ by one feature.

The price per square foot check

Price per square foot is a fast sanity check, not a method on its own, because it ignores features like garages and bathroom counts. In the example, the three comps sold for about $182, $186 and $195 per square foot. The average, about $188, times 1,600 square feet is $300,800. That is within half a percent of the adjusted ARV, so the two methods agree.

When they disagree by more than a few percent, one of your comps is usually wrong: a different school zone, a busier street, or a renovation at a different finish level. Drop it or adjust it, then run both methods again.

Common ARV mistakes

• Using unrenovated comps. They produce an as-is value, not an ARV.
• Using list prices. Sellers ask for more than buyers pay. Only sold prices count.
• Crossing a boundary. A comp across a major road, school line or rail track can be worth very different money.
• Using old comps in a shifting market. In a falling market, a six-month-old sale overstates value.
• Ignoring what you cannot fix: a busy road, a power line, a bad floor plan. Comps without those problems need a downward adjustment.
• Over-improving. Granite in a neighborhood of laminate does not raise ARV to match the cost.
• Trusting an automated estimate. Online models do not know the house is gutted, or that the comp next door was a teardown.

How ARV feeds your offer

ARV is the first input to the 70% rule: ARV x 0.70 minus repairs. It is also the first input to your maximum allowable offer, which subtracts your fee as well. Both then need one more check: does the number clear what the seller owes?

LowBaller does not calculate ARV or provide comps. Its suggested offers start from the property's estimated current value, apply the discount the owner's situation supports, and cap the result so it still clears the owner's estimated mortgage and closing costs. Use your ARV math for the exit and LowBaller's start bid and likely close for the seller side. The free lowball offer calculator shows the seller-side numbers for any value you enter.

How to estimate ARV when there are few comps

Rural areas, unusual houses and thin markets often have no clean comps. Widen the search in steps: first the time window to 12 months, then the radius, then the size range. Note every widening, because each one makes the estimate less reliable.

Adjust older sales for market change. If sales in the area are up about 4 percent over the year, a comp from 10 months ago needs an upward adjustment of roughly 3 percent. Ask a local agent for a broker price opinion and talk to the cash buyers who work the area. When the evidence is thin, lower your factor rather than raising your ARV. That way the uncertainty lands on your offer, not on your exit.