After-repair value, or ARV, is the estimated market value of a property once your planned renovations are finished. It is the single most important number in a fix-and-flip. It decides whether the deal makes money, and on high-leverage loans it often decides how much the lender will finance.
Get it right and the rest of the deal tends to fall into place. Overestimate it and you can end up short on funding halfway through the project, or stuck with a house that will not sell at your target price.
Here is how to estimate ARV the way an appraiser and a lender will look at it.
Why ARV Matters for Your Loan
Most fix-and-flip programs limit the loan to a percentage of ARV. On 100% financing programs, the loan can cover the full purchase price and renovation budget, but only up to 75% of ARV.
For example, if you buy a house for $180,000 and budget $50,000 for the rehab, your total project cost is $230,000.
- If the ARV is $320,000, 75% of ARV is $240,000. The full $230,000 can potentially be financed.
- If the ARV is $280,000, 75% of ARV is $210,000. You would need to cover a $20,000 gap.
Same house, same budget, very different cash requirement. That is why it pays to estimate ARV conservatively and with evidence.
Step 1: Define the Finished Product
Before you search for comps, be specific about what the house will be after the renovation:
- Square footage (above-grade living area)
- Bedrooms and bathrooms
- Lot size
- Garage or carport
- Finish level (rental-grade, mid-range or high-end)
- Major upgrades such as a new roof, HVAC, kitchen or added bathroom
Your comps need to match the finished product, not the house as it sits today.
Step 2: Pull Comparable Sales
Comparable sales, or comps, are recently sold homes similar to what yours will be after the rehab. Good comps generally share these traits:
- Sold, not listed. Closed sales show what buyers actually paid. Active listings show what sellers hope to get.
- Recent. Ideally within the last six months. In a fast-moving market, the last three months matter most.
- Close by. Same subdivision or neighborhood when possible. Crossing a major road, school boundary or rail line can change values significantly.
- Similar size. Within about 10% to 20% of your finished square footage.
- Similar age and style. A 1960s ranch and a 2015 two-story are not the same product, even at the same size.
- Similar condition. Look for homes that were renovated, not sold as-is.
Aim for at least three strong comps. Five or six gives you a clearer picture of the range.
Step 3: Adjust for Differences
No comp is a perfect match. Appraisers make adjustments to account for differences, and you should too:
- Square footage: add or subtract value for size differences, usually using a per-square-foot figure from the comps themselves.
- Bedrooms and bathrooms: an extra full bath often carries a meaningful premium in many markets.
- Garage: a two-car garage versus none can move value noticeably.
- Lot and location: a corner lot on a busy street, a cul-de-sac, or a view can each shift value.
- Finish level: quartz versus laminate counters, new versus original windows.
Be honest in both directions. If your comp has a finished basement and your house does not, adjust it down.
Step 4: Reconcile to a Number
After adjusting, you will have a range. Weight the comps that are closest in location, size and sale date most heavily. Your ARV should sit within the adjusted range, and for financing purposes it is wise to lean toward the middle or lower end rather than the top sale.
A quick sanity check is price per square foot. If every renovated comp sold between $165 and $185 per square foot, an ARV that works out to $215 per square foot needs a very good reason.
Common ARV Mistakes
- Using the highest sale in the area as your benchmark
- Using active listings or Zestimates instead of closed sales
- Ignoring neighborhood boundaries that buyers care about
- Over-improving beyond what the neighborhood will pay for
- Comparing to new construction when you are renovating an older home
- Working backward from the price you need to make a profit
How the Lender Determines ARV
Your estimate gets the conversation started, but the lender will order its own appraisal or valuation based on your scope of work. That approved value, not your projection, sets the loan limits.
You can help the appraisal go smoothly by providing:
- A detailed, line-item scope of work and budget
- Before photos and, if available, design plans or finish selections
- Your list of comps with notes on why each is relevant
If the appraisal comes in lower than expected, you may need to reduce the loan, renegotiate the purchase price, adjust the scope or bring more cash.
Put Your ARV to Work
Once you have a supportable ARV, run it through our 100% Financing Calculator to see your estimated loan, funding gap and cash requirement. For more on how leverage is calculated, read Can You Get 100% Financing for a Fix-and-Flip? and Fix-and-Flip Loan Requirements. Ready to move forward? Submit your deal for a preliminary review.
Disclosure
Borrowers Capital LLC provides access to business-purpose real estate financing through correspondent and private lending channels. Program availability, leverage, pricing, fees, loan amounts and approval requirements vary by transaction and are subject to applicable lender guidelines, borrower and property eligibility, valuation, due diligence, underwriting and final approval. References to 100% financing describe the potential financing of eligible project costs and do not guarantee a zero-cash transaction or loan approval. Borrowers Capital LLC may receive compensation in connection with arranging a transaction. This article is general information and does not constitute a commitment to lend, an offer of credit, or financial, legal or tax advice.