ARV

What is ARV (After Repair Value)?

Simple definition and why ARV matters

ARV (After Repair Value) is the estimated market value of a property after all planned repairs, renovations, or improvements are completed. For investors, flippers, and lenders ARV is the single most important forward‑looking number because it determines potential resale price, profit opportunity, and how much a lender will finance.

Why it matters: ARV helps you decide whether a deal can make money once you add purchase price, rehab costs, holding costs, and selling costs. It’s the anchor for offer strategy, budgeting, and financing decisions.

ARV vs. “as‑is” value, market value, and appraised value

• As‑is value: What the property is worth today without repairs. Often lower than ARV when repairs are needed.
• Market value: The likely sale price based on current demand and recent sales—can refer to as‑is or post‑repair states depending on context.
• Appraised value: The value determined by a licensed appraiser at a specific time; for rehab loans appraisers may report an as‑is and an after‑repair value.

Who uses ARV — investors, lenders, agents, and buyers

• Investors and flippers use ARV to calculate profit, MAO (Max Allowable Offer), and return on investment.
• Lenders (especially hard‑money and rehab lenders) use ARV to set loan limits and LTVs.
• Real estate agents use ARV to set post‑renovation listing prices and marketing strategies.
• Buyers evaluating fixed‑up homes use ARV conceptually to compare renovated properties vs. newly listed ones.

How to calculate ARV — step‑by‑step

Step 1 — Find recent comparable sales (comps): what qualifies as a good comp

• Use closed sales within the last 3–6 months in the same neighborhood or micro‑market.
• Prefer homes with the same bed/bath count, similar square footage (+/‑10–15%), lot size, and construction type.
• Prioritize comps that reflect the same quality level after your planned rehab (e.g., if you’ll create a mid‑level finish, use comps with mid‑level finishes).

Step 2 — Adjust comps for size, age, condition, and features

Make dollar adjustments to account for differences: add value for comps that have features your subject lacks (or subtract if your subject has a benefit the comp lacks). Typical adjustments include:

• Price per square foot differences
• Extra bedrooms / bathrooms
• Updated kitchen or baths vs. outdated condition
• Lot, garage, pool, or major systems (roof, HVAC)

Step 3 — Average adjusted comp prices to estimate ARV

After adjusting the comparable sales to reflect the subject property’s planned post‑rehab condition, average the adjusted sale prices (or weight the most similar comps more heavily) to arrive at a best‑estimate ARV.

Step 4 — Cross‑check with active listings and market trends

Validate your ARV by checking current active listings, pending sales, and whether prices are trending up or down. Active listings are aspirational; closed sales carry more weight. Adjust ARV up or down for rising/falling markets and seasonal factors.

Practical example: ARV calculation with numbers

Example property details (bed/bath/sqft/condition)

Subject: 3 bed / 2 bath, 1,400 sqft, built 1985, currently outdated kitchen & baths, needs cosmetic and minor structural repairs. Planned updates: new kitchen, two baths, flooring, paint, minor roof repair.

Three comps with adjustments and math to arrive at ARV

• Comp A — Closed $275,000; 1,420 sqft; similar layout; updated kitchen. Adjustment: -$5,000 (comp has slightly better lot). Adjusted = $270,000.
• Comp B — Closed $290,000; 1,380 sqft; fully renovated; better master bath. Adjustment: -$10,000 (comp has superior finishes). Adjusted = $280,000.
• Comp C — Closed $265,000; 1,450 sqft; similar finishes. Adjustment: +$3,000 (comp smaller lot). Adjusted = $268,000.

Average ARV = (270,000 + 280,000 + 268,000) / 3 = $272,667 → Round to $273,000 ARV.

Quick sanity checks to validate the estimate

• Are any recent sales outliers? If one comp is far from the others, weight it less or remove it.
• Do active listings price consistently near the ARV? If all active listings are notably lower, reassess market trend.
• Does the ARV align with price per sqft for comparable quality homes in the neighborhood?

Using ARV to make offers and project profit

Max Allowable Offer (MAO) formula(s) explained (e.g., MAO = ARV x %, subtract rehab & costs)

MAO is the highest price an investor should pay to meet a target profit. A common formula:

MAO = (ARV x TargetPercentage) − EstimatedRepairCosts − OtherCosts

Example target percentages vary (70%, 65%, or custom). These percentages account for acquisition, selling costs, financing fees, and desired profit.

Common MAO rules of thumb (70% rule and variations) and when to adjust them

• 70% Rule: MAO = (ARV x 0.70) − Rehab. Good for flips where you want a buffer for fees and profit.
• 65% Rule: More conservative—used in volatile markets or when rehab costs are uncertain.
• Adjust when: local markets are hot (raise the %), when rehab is minimal (raise), when rehab or holding risk is high (lower the %).

Factoring rehab costs, holding costs, closing costs, and desired profit margin

Include the following in "OtherCosts":

• Financing costs / interest
• Holding costs (taxes, insurance, utilities, HOA, carrying months)
• Closing costs when buying and selling (transfer taxes, agent commissions)
• Contingency reserve (typically 5–10% of rehab)
• Desired profit (flat dollar or % of ARV)

How lenders and appraisers treat ARV

Hard‑money and private lenders: typical LTVs based on ARV

Hard‑money lenders usually lend based on ARV rather than purchase price, with common LTVs like 65–75% of ARV for stabilized properties. Loan terms and points vary with borrower experience and rehab scope.

Banks and conventional loans: differences, appraisals, and timing

Conventional lenders rarely base purchase loans on future ARV for a simple purchase— they rely on appraised value at closing. For renovation loans (FHA 203(k), Fannie Mae HomeStyle), lenders and appraisers will estimate an after‑repair value and may require inspections, contractor bids, and escrows for disbursements.

What underwriters look for: supporting comps and scope/timeline of repairs

Underwriters want clear evidence that the ARV is realistic: strong comps, detailed contractor estimates, a realistic rehab timeline, contingency plans, and borrower experience. Weak comps or vague repair scopes lead to reduced loan amounts or denial.

Common pitfalls and how to avoid them

Poor comp selection and over‑adjusting upgrades

Avoid using distant or dissimilar comps. Don’t justify large dollar adjustments for cosmetic upgrades—let the market indicate value.

Underestimating rehab costs and hidden deferred maintenance

Always include a contingency (5–15%). Get contractor quotes for structural, mechanical, and major systems—cosmetics are cheaper than structural repairs.

Ignoring market momentum and seasonality

ARV based only on past sales ignores rapid market shifts. If prices are rising quickly, account for appreciation; if cooling, be conservative.

Overreliance on seller/agent projected ARV — how to verify claims

Verify any claimed ARV by checking closed comps, speaking with a local appraiser, or getting contractor estimates. Sales agents may present optimistic ARVs to justify higher list prices.

Tools, templates, and resources to estimate ARV

MLS and public record sources for comps

Use the MLS if you have access. Public records, county assessor sites, and sold data from local REALTOR® sites are useful backups.

Online valuation tools and ARV calculators (pros & cons)

Automated tools (Zillow, Redfin, online ARV calculators) provide quick estimates but can miss local nuances and recent sales. Use them as a sanity check, not the final answer.

Downloadable ARV checklist and rehab cost estimator

Having a printable checklist and a rehab budget spreadsheet helps standardize estimates across deals. (If you want, I can add a downloadable spreadsheet or checklist.)

When to call an appraiser or local contractor for verification

Call an appraiser for complex rehabs or when you need a lender‑accepted ARV. Use local contractors for accurate scope and cost estimates for major systems and structural work.

Real World Application (fictional scenario)

Scenario setup: the property, neighborhood, and the opportunity

Suburban B neighborhood: steady demand, good schools. Subject property: 3/2, 1,350 sqft, as‑is asking $150,000. Expected rehab: full kitchen, two baths, new flooring, paint, HVAC tune, minor roof patch.

Walkthrough: find comps, calculate adjusted comps, arrive at ARV

• Comp 1: Closed $245,000 — 1,360 sqft, recent kitchen/bath remodel. Adj. = $240,000.
• Comp 2: Closed $255,000 — 1,330 sqft, high‑end finishes. Adj. = $250,000.
• Comp 3: Closed $235,000 — 1,380 sqft, similar finishes. Adj. = $237,000.

Average ARV ~ ($240k + $250k + $237k)/3 = $242,333 → Round to $242,000 ARV.

Compute rehab estimate, MAO, projected profit, and lender LTV

• Estimated rehab: $35,000
• Holding & carrying: $6,000
• Selling costs (6% agent + closing): $15,000
• Desired profit: $20,000

Using a conservative MAO formula: MAO = (ARV x 0.70) − Rehab = (242,000 x 0.70) − 35,000 = 169,400 − 35,000 = $134,400.

Compare MAO to seller ask $150,000 — at $150k the deal fails the 70% rule. If you negotiate to ≤ $134k it meets the rule. Alternatively, if you accept a smaller profit or use a 75% factor (hot market), MAO = (242,000 x 0.75) − 35,000 = 181,500 − 35,000 = $146,500 — still below $150k.

Lender LTV example: a hard‑money lender offers 65% of ARV → 0.65 × 242,000 = $157,300 loan max.

Decision: accept, negotiate, or walk — and why

Because MAO < seller ask and rehab/holding costs plus fees erode profit, the rational choice is to negotiate price down toward MAO or walk. Alternatively, secure cheaper rehab estimates or accept a smaller profit only if strategic reasons (portfolio growth) justify it.

Quick checklist — How to validate an ARV before you bid

8‑point checklist: comps, adjustments, rehab quotes, market check, timelines, financing, contingency plan, walkaway price

1. Collect at least 3 strong closed comps within 3–6 months.
2. Make precise, market‑justified adjustments (size, beds, baths, upgrades).
3. Obtain contractor bids for major systems and an itemized rehab budget.
4. Check active listings and pending sales for momentum and seasonality.
5. Estimate holding time and add realistic carrying costs.
6. Confirm financing terms (LTV on ARV, points, draw schedule).
7. Include a contingency reserve (5–15%) for hidden issues.
8. Set a clear walkaway price (MAO) and stick to it.

Frequently asked questions (short answers)

How accurate does ARV need to be for lenders?

Lenders expect a defendable ARV with solid comps and contractor estimates. They aren’t looking for perfect precision but for documentation that supports the number; appraisers may adjust it.

Can ARV change before closing? (market/appraisal risks)

Yes. Market shifts or an appraiser’s lower conclusion can reduce ARV before closing, affecting financing and deal viability. Always have contingency plans.

Are there areas where ARV is unreliable?

Thin markets, rural areas, or neighborhoods with volatile comps make ARV less reliable. Unique properties with few comparables are also risky.

How do I learn to get better at estimating ARV?

Practice by running comps regularly, shadow an appraiser or agent, get contractor quotes, and review post‑sale numbers from flips to compare projected vs. actual ARVs.

Conclusion and next steps

Key takeaways (one‑line bullets)

• ARV = estimated value after planned repairs; it’s essential for deal decisions.
• Use 3+ strong comps, adjust carefully, and cross‑check market trends.
• MAO = (ARV x percentage) − rehab; the 70% rule is a helpful starting point.
• Verify ARV with contractor bids and, when necessary, an appraiser.

Suggested next actions: use a calculator, download checklist, consult local pros

• Run the numbers using an ARV/MAO spreadsheet (I included a worked numeric MAO example above).
• Get at least one contractor estimate and consult a local appraiser for high‑risk deals.
• If you’d like, I can add a downloadable ARV calculator spreadsheet or a printable ARV validation checklist — tell me which and I’ll create it.