“The numbers don’t lie—but only if you get them right.”
Imagine finding a property that seems like the perfect flip. The neighborhood is up-and-coming, the price is low, and your imagination runs wild with renovation ideas. But before you make an offer, there’s one question every new real estate investor must answer: Is this deal really worth it? That’s where after repair value (ARV) comes into play.
For beginners, calculating ARV accurately is a critical skill. Get it wrong, and you risk losing money. Nail it, and you could secure a profitable deal that sets the foundation for your investing career. Learning to determine the value of real estate gives you the power to spot opportunities others may miss while avoiding the duds. Knowing your numbers is crucial. This guide will show you exactly how to determine ARV and ensure you can confidently assess any deal that comes your way.
What is ARV?
The After Repair Value (ARV) is the estimated market value of a property after all renovations are complete. ARV answers the question, “What can I sell this property for after I fix it up?”
How to Calculate ARV:
1. Define the "after repairs" property
Determine what features the post-renovation property will have.
2. Find comparable sales
Find similar, recently sold properties in a similar area as the post-renovation property. Comparable properties (comps) should be as similar as possible.
3. Make adjustments
Determine the value of any differences between the properties.
4. Consider the market
Consider market conditions to determine where you would price the property within the range of adjusted values while meeting your goals.
While the process sounds simple, arriving at accurate figures requires detailed research and careful consideration of market data to determine the contributory value of various features and adjust comps accordingly. These are the nuances that separate a successful deal from a costly mistake.
Don’t expect accuracy if you’re still determining value using price per square foot methods. Accurate, market supported adjustments are the key to knowing your numbers.
Download Our ARV Workbook to Start Practicing Your Valuation Skills [Free Download]
Start by selecting the right comps. Then practice making adjustments and fine tuning them with supplied market data. When you’re finished, check your work with our solutions manual that will walk you through completing the problem step-by-step.
How Bad Calculations Cost You
After Repair Value isn’t just a number— it’s your roadmap to profitability. By determining the ARV, you gain insight into the potential market value of a property once renovations are complete, allowing you to evaluate whether the investment is worth pursuing. This value plays a key role in your decision-making process because it helps you calculate your Maximum Allowable Offer (MAO), which is the highest price you should pay for a property to ensure a profitable return on investment (ROI). Without a reliable ARV, you risk overpaying for a property, potentially eroding your profits or even resulting in a loss.
A Prerequisite For Profitable Offers
ARV is essential for determining your maximum allowable offer (MAO), the highest price you can pay for a property while still ensuring a set profit. It helps you balance the renovation costs and your desired return on investment. Without a reliable ARV, you risk overestimating a property’s value and making an unwise offer.
Strategic Planning for Renovations
ARV guides your renovation choices by highlighting the upgrades that will add the most value. Knowing the ARV allows you to prioritize high-impact improvements and avoid wasting money on unnecessary upgrades, ensuring you stay within budget while maximizing the property’s market value.
Let’s say you planned on adding a large deck to the property, but while determining an adjustment value for the deck, you realize that the market doesn’t value the feature more than the cost to add it. This would make adding the deck a poor investment. By finding out before ever starting the project, you can avoid the improvements with low returns by adjusting your renovation plans.
Evaluating Investment Returns
ARV also sets a profitability benchmark, helping you determine if a deal meets your financial goals. It provides a reference for your expected return, so if the ARV doesn’t align with your profit targets, you can adjust your plans or walk away from the deal.
Ultimately, ARV acts as a safeguard by ensuring your investments are financially sound. It helps you avoid costly mistakes and ensures that each deal aligns with your objectives, maximizing your potential for success in the real estate market.
Choosing the Right Valuation Method
There are several ways to estimate ARV, but the comparable sales method is the gold standard for accuracy. Here’s why:
- It reflects actual market behavior by using real-world sales data from recently completed transactions. It shows what buyers and sellers did, rather than speculating what they might do when making a purchasing decision.
- It’s widely accepted by lenders and appraisers. You’ll have data to support loan applications and will have done your homework if you face any unfavorable appraisals.
- It allows for precise adjustments based on property-specific factors. You’ll determine the contributory value that different features add or subtract from the property’s fair market value, which allows you to compare the cost of repairs and improvements to the value they will add before incurring the cost.
How to Calculate ARV Using The Comparable Sales Method
| Data Source | Feature Quality Assessments | Access | Update Frequency | Best Use |
|---|---|---|---|---|
|
Multiple Listing Service (MLS) |
Interior & Exterior Photos |
Restricted to NAR Members, Paid Access |
Specific properties updated when last listed on MLS. Market data is constantly updated. |
All Uses |
|
County Assessor Websites |
Exterior Photos Only |
Publicly Available, Free Access |
Updated when assessment occurs. Often years apart.Sales data updated more frequently. |
Obtaining Property Features: square footage, lot size, garage size, and other features. |
|
Listing Websites |
Interior & Exterior Photos |
Publicly Available, Free Access |
Specific properties updated when last listed on MLS or their listing site. Market data is constantly updated, but difficult to gather. |
All Uses, For Sale By Owner (FSBO) Transaction Data |
Collecting Accurate Market Data for Precision
Generally, gathering data from the property first hand gives you the best information about it’s current condition, any repairs or updates completed, and changes in neighborhood conditions since data was last updated, but this is not often an option.
Data is your best friend when calculating ARV. Here are some reliable sources to incorporate:
Local MLS:
- Provides detailed comp data and market trends. Also includes information that may not be publicly availably, such as seller concessions, agent remarks, and attached documents, such as Seller’s Disclosures of Property Condition (and historical documents from prior listings).
- Frequently updated by real estate licensees during transactions.
- Owned by the National Association of Realtors® (NAR).
- Several separate MLS services exist throughout the country. Each local Realtor® association will have their own MLS containing local property data. There is not one MLS that contains data on all properties.
County assessor websites:
- Offers historical property assessed values. Assessed values are not market values and do not reflect the market’s response.
- Infrequently updated as new assessed values are updated years apart.
- Great for measurements, exterior properties features, and information about utilities.
- Interior property features are often neglected or outdated due to assessors rarely inspecting the property’s interior when determining value and relying on permits.
Real estate listing websites:
- Tools like Zillow, Redfin, or Realtor.com can help track neighborhood sales.
- Many listing sites pull their data directly from the MLS, but will not display agent remarks or any information not made public in the MLS.
- Include data on For Sale By Owner (FSBO) properties that owners have listed on the website, which are not listed on the MLS. You’ll want to avoid these listings as comps as their prices were often determined by homeowners not appraisers or experienced real estate agents.
- Assist with pricing strategy when listing a property and offer insight into what buyers are seeing, as these platforms are often the first place potential buyers look when searching for a home.
You’ll use the data these tools provide to find comparable sales and determine adjustment values.
Ignore Assessed Values & Automated Valuation Models (AVMs)
When learning to use the comparable sales method to determine property value, ignore assessed values and automated valuation models (AVMs), such as Zestimates.
These figures often do not reflect the true market conditions. Assessed values are typically determined by local tax authorities and may be outdated or not aligned with current market trends. They often rely on standardized formulas and may not account for unique property features or fluctuations in neighborhood demand, leading to an inaccurate valuation.
Automated valuation models, while convenient, also have limitations. These models use algorithms to estimate property values based on public data, but they don’t always factor in recent sales, property condition, or other critical variables that appraisers and analysts can consider.
Because these systems can be based on incomplete or generalized data, they are often less reliable than the hands-on approach of comparing similar properties that have recently sold in the area. Therefore, sticking to comparable sales ensures a more precise and up-to-date assessment of a property’s value.
1. Define Your Subject Property
Determine the scope of your rehab project. What repairs and updates will you complete?
Will the size, layout, amount of finished area, or number of bedrooms and bathrooms change? This will likely change how an occupant uses the property. Will the amount of natural light or ceiling heights change? Will you remove walls and doors and make it into something more open-concept? This will give the home a different feel than it previously had.
Clearly, repairing any differed maintenance or defects will improve the condition of the property, but you may also want to add higher quality finishes, such as granite, where laminate counter tops were, that also improve the condition. The list of desirable features may grow as you improve the property.
All of these can potentially add value, making your property’s post-renovation value increase. Since the property hasn’t been renovated yet, you’ll need to define the hypothetical, post-renovation property that you want to determine the value of before you start. You can adjust the feature list and renovation plans later if you find that parts of your original plan won’t lead to added market value.
2. Finding Comparable Properties
Identify similar properties, known as comps, that have sold recently in the same area. Look for properties with similar size, layout, condition, and amenities to the subject property, which when calculating ARV, is the post-renovation property. Remember, we want the value of the property after repairs.
Not all comps are created equal. The key is choosing properties that truly mirror your subject property—same neighborhood, similar square footage, a comparable level of upgrades, and so on.
The Ideal Comparable: Paired Sales
In theory, the ideal comparable would be exactly the same as your subject property with the same location, layout, features, and condition. However, achieving this is impossible because no two properties are exactly alike. Even homes that seem identical can have subtle differences in their location, surroundings, or other factors that affect their value. For example, your comp might be only a few lots away on the same street, but your subject property is positioned further from a very busy street that does impact value. These small distinctions can impact the property’s appeal and market value, making a truly perfect comparable rare.
Our best option when selecting a comparable is a paired sale, where two nearly identical properties are compared. In this scenario, the properties share the same key features—such as square footage, layout, age, condition, and maybe even the same builder (similar quality) and floor plan—but differ in minor details like lot location, view, or lot size. This allows for a more accurate assessment of how specific factors, such as location or external features, influence the value of a property. By using paired sales, you can limit the variables impacting value and isolate these differences to determine how much value a specific feature adds or detracts, helping to refine the property valuation.
Finding The Best Comps Available
Use the MLS or real estate listing websites to identify comparable properties. Look for properties that have sold within the last 6 months. Ideally, stick to a 1-mile radius or less, but stay within the same neighborhood. Controlling for distance helps increase the likelihood that your comparable has similar neighborhood features. Be aware of neighborhood features, such as property taxes, school districts, assistance programs, historical districts, or neighborhoods valued for its added character. Even within a mile, crossing the street can mean neighborhood differences between your subject property and comps.
Begin by identifying recently sold properties in the same area with the same number of bedrooms and bathrooms. If your search returns too many results, refine it by adding additional criteria one at a time until you have a manageable set of around 30-50 potential comps. Next, carefully review listing photos to assess the condition, quality of finishes, and overall functionality of each property. From there, select the five or six properties that most closely match the subject property.
Initial Search Criteria Example
| Feature | Subject Property | Comparable Criteria | Options |
|---|---|---|---|
|
Listing Status |
N/A |
Sold |
Only use sold listings for comps. Do not use pending or active listings. |
|
Sold Date |
N/A |
6 Months or Less |
Older sales data can be used if recent comps cannot be found |
|
Location |
Subject Property Address |
Within 1 Mile of Subject Property Address |
Comps further away can be used if closer comps cannot be found and neighborhood features are kept consistent |
|
Property Class |
Single-Family Home |
Single-Family Home |
Possible Options: Single-Family Home, Acreage, Townhouse, Condo, Duplex, Apartment |
|
Property Style |
Ranch |
Ranch |
Possible Options: Bungalow, Ranch, Raised Ranch, Split Foyer, Split Level, 1.5 Story, 2 Story, 3 Story, Bi-Attached, Apartment Style, Manufactured Home |
|
Bedrooms |
3 BR |
3 BR |
The best comps will have the same bedroom layout. Can be fewer or more bedrooms. Try broadening your criteria before selecting comps with a different number of bedrooms. |
|
Bathrooms |
2 BA |
2 BR |
If not enough comps with this criteria selected, remove and make adjustments for bathrooms. Partial bathroom differences (three quarter or half baths vs full baths) are acceptable and can be accounted for in your adjustments. |
|
Square Footage |
1,286 sq ft |
1,150 – 1,450 sq ft |
Start with a range 150 sq ft above and below your subject property’s square footage. Expand this criteria if needed. Make partial adjustments if needed. |
|
Year Built |
2003 |
1993 – 2013 |
Start within a range of 10 years older and newer than the subject property. Comps outside of the range are acceptable, but this criteria will help narrow results to properties of similar condition and quality. |
Limiting Adjustments
The fewer adjustments you need to make to a comp, the more reliable your ARV calculation will be. Every adjustment introduces subjectivity, increasing the chance of misjudging market value. The best way to minimize adjustments is by selecting comps that already closely match the subject property in key characteristics, such as layout, architectural style, condition, and overall appeal.
To limit adjustments, start with a strict selection process. Focus on comparable sales that share fundamental similarities with the subject property, particularly within the same market area and recent sales timeframe. If you find yourself making multiple or significant adjustments, reconsider your chosen comps—better options likely exist. A high number of adjustments not only weakens the accuracy of your ARV but also signals to appraisers and investors that the supporting data may not be strong. By prioritizing the most similar properties, you ensure a more defensible and precise valuation.
Troubleshooting: It is sometimes difficult to find enough comparable properties to utilize the comparable sales method when determining value. You may need to learn how to broaden your search criteria while making sure you are still using acceptable comps before moving to the next step. If your investment property is not a single-family, residential home, you may need to use other valuation methods, such as the income approach or cost approach due to a lack of recent comparable sales data.
When to Broaden Your Search
While it’s best to use the most similar comparable sales, there are cases where a strict selection may leave you with too few or no viable comps. In these situations, it’s necessary to broaden your search strategically to find sales that still provide meaningful market insights. The key is to expand your search criteria in a way that maintains the most relevant aspects of value while minimizing the need for excessive adjustments.
When broadening your search, start with the least impactful deviations first. Expand the timeframe before considering sales from a different but similar market area, as market conditions often shift more slowly than location-based pricing trends. If needed, adjust property feature criteria next, prioritizing those that have the least influence on value. However, avoid making multiple large deviations at once—each change should be deliberate and justified to ensure the comps remain reliable. If no strong comps exist even after broadening your search, it may indicate that the property’s value must be calculated using other valuation methods.
3. Adjusting Your Comps to Match
Make precise adjustments to account for variations in features and quality between the subject property and the comps, such as square footage, number of bedrooms, or garage size. Add or subtract value for these differences until your comps match your subject property. Determining accurate adjustment values is vitally important for accurate property valuations. Adjustment values are determined using a variety of methods to isolate the contributory value of different features from market data.
Appraisers don’t just average price per square foot; they meticulously adjust for factors like:
- Square footage: Add or subtract value based on the price per square foot in the area.
- Bedrooms and bathrooms: Consider the impact on market demand.
- Upgrades and features: Adjust for high-end finishes, pools, or lack of a garage.
Troubleshooting: Having trouble determining what should be adjusted? Nearly anything can be an adjustment if the sales data shows a market reaction to the feature. For example, you aren’t likely to find a market reaction for a house painted bright white compared to an off white, but you may find, with enough data, a significant enough decrease in the sold price of homes with bright, unusual paint colors, like lime green, to make an adjustment. It’s also unlikely that you find added value for features that buyers would expect, such as a furnace or plumbing system, but you probably will find a market reaction supporting a decrease in value if these components are missing.
Learn More
Matching Features (=)
If the comp and subject property have the same feature, no adjustment is needed—unless there’s a difference in quality.
Example: Both the comp and the subject property have 2 full bathrooms. No adjustment is needed unless the bathrooms differ in quality, such as one having luxury upgrades while the other does not.
Missing Features (+)
If the comp lacks a feature the subject property has, add the value of that feature to the comp.
Example 1: The comp has 1 full bathroom, but the subject has 2. Add the value of the second bathroom to the comp’s sale price.
Example 2: Your comp sold for $445,000. The comp doesn’t have a fireplace, but the subject has one. Market data shows a value add of $5,000 for a fireplace of this quality. Add $5,000 for the fireplace to the comp’s sale price of $445,000. Your comp’s adjusted value is now $450,000.
Additional Features (-)
If the comp has a feature the subject property doesn’t, subtract the value of that feature from the comp.
Example 1: The comp has a fireplace, but the subject does not. Subtract the value of the fireplace from the comp.
Example 2: If your comp has an extra bathroom valued at $10,000, subtract that amount from its sale price to align it with your subject property.
Partial Differences
If one property has a partial feature, such as a half bath versus a full bath, adjust by the value of the difference between them.
Example 1: If the comp has a half bath and the subject has a full bath, add the value of a half bath to the comp.
Example 2: If the comp has 400 square foot garage and the subject has a 576 square foot garage, add the value of the 176 square foot difference to the comp.
Related:
Determining Adjustments: Property Features List [Free Download]
Download our full list of property features to be sure there’s nothing you’re missing when making adjustments to comps.
4. Account For Market Conditions
Determine the property’s likely sale price based on the range provided by your adjusted comps, the market type (buyer’s, seller’s, or balanced), and whether the market is trending up or down.
Your pricing strategy and goals will influence where you list within this range and the final sale price. Pricing low may lead to a quick sale, while pricing higher could maximize profit. In a seller’s market, listing low might spark a bidding war, potentially driving the final price higher than if you had listed at the top of the range.
Ultimately, your strategy should align with your goals and the current market conditions, helping you set realistic expectations.
Positioning Within the Market
Check which way the market is trending. Are prices in the neighborhood rising, falling, or stable? This context can fine-tune your ARV calculation. Why? Assume the renovations are complete, you’re listing the property for sale, and since the market has remained stable, the market value you determined is still accurate. What price you list the property at would depend on the current market conditions and your objectives. For example, if you’re not concerned with the time spent on market, you can hold strong at a higher pricer, especially in a seller’s market. If you’re in a rush to get it sold, you’ll want to list on the lower side of the range of value, especially in a buyer’s market.
The Importance of a Contingency Plan
Even with the best data, real estate markets can be unpredictable and, like any market, are in a constant state of change. That’s why seasoned investors build a margin of safety into their ARV calculations. A good rule of thumb is to discount your ARV by 5-10% to account for unexpected expenses or shifts in market conditions.
Calculating ARV accurately is a critical skill for any real estate investor. By mastering the use of comps, understanding market data, and applying adjustments like a pro, you’ll set yourself up for profitable deals every time.
