How to Estimate After Repair Value (ARV)
After repair value, or ARV, is what a house should sell for once the work is finished. The usual way to estimate it is from recent sales of similar renovated homes nearby. It is the most important number in a flip, so it deserves the most care.
Why it matters so much
Every other figure in a flip, from the most you can pay to your profit, is built on the ARV. If it is 10 percent too high, a deal that looks good can lose money. Guides on the subject commonly advise reading the result as a range and planning around the low end.
Step 1: find comparable sales
You want sales of homes like the one you will have after the renovation. Common guidance is:
- Renovated homes. Compare the finished house with other finished houses, not with unrenovated ones.
- Recent. Sold in roughly the last three to six months. Older sales may not reflect today's market.
- Close. In the same market area. Busy roads, school district lines and similar boundaries can separate demand, so stay on the same side.
- Similar. Comparable bedrooms, bathrooms, square footage and lot size.
- Sold, not listed. Use closed sale prices. Asking prices show hope, not what buyers paid.
- Several of them, typically three to six.
An agent with access to your local listings service can pull these for you, and a local agent or appraiser will know which ones are the best matches.
Step 2: work out price per square foot
Divide each sale price by its square footage, then average them.
Five example comparable sales. These are made-up figures to show the method.
| Comp | Sold for | Size | Price per sq ft |
|---|---|---|---|
| 1 | $200,000 | 1,000 sq ft | $200 |
| 2 | $230,000 | 1,100 sq ft | $209 |
| 3 | $255,000 | 1,200 sq ft | $212 |
| 4 | $270,000 | 1,250 sq ft | $216 |
| 5 | $310,000 | 1,400 sq ft | $221 |
The average is $212 per square foot, with a low of $200 and a high of $221.
Step 3: apply it to your property
Multiply by the square footage of the finished house. If yours will be 1,150 square feet:
- At the average: 1,150 × $212 = $243,574
- At the low end: $230,000
- At the high end: $254,643
The spread between low and high is a warning. Plan around the lower figure unless you have strong reasons to expect more.
Step 4: adjust for differences
Price per square foot ignores everything else. Adjust, or at least think about, features that make your house better or worse than the comps, such as:
- A larger or smaller yard, or a garage the comps lack.
- A better or worse street or view.
- A different finish level than the comps, and a different number of bathrooms.
- Smaller homes often sell for more per square foot than bigger ones, so compare like with like.
Common mistakes
- Using asking prices or old sales.
- Comparing with unrenovated houses.
- Picking only the best comps and ignoring the lower ones.
- Assuming the market keeps rising during your project.
- Forgetting selling costs, which come out of the ARV.
Using the ARV
Once you have a figure, put it in the house flip calculator and try the low end as well. The 70 percent rule uses it to give a quick maximum offer. This guide is general information, not financial or valuation advice. Check your figure with a local agent or appraiser.
Related
Questions
How many comparable sales do I need?
Guides commonly suggest three to six renovated sales from the last few months. More is better if the market is steady. Fewer means being more careful with the result.
Can I use an automated online estimate?
It can be a rough starting point, but automated estimates can be well off, especially for renovated homes, because they may not know about the work done. Closed sales of similar renovated homes are the better basis.
Should I use the highest comparable sale?
Be cautious. Planning around the average or the low end is safer, because the highest sale may have features yours will not.
What if there are no renovated comparables nearby?
Widen the area or the time period carefully, and ask a local agent or appraiser. Treat the result with more caution, since there is less evidence of what finished homes there actually sell for.