How to Calculate ARV (After Repair Value) for a Flip

What ARV is and what it is not

ARV is the price a property should command on the open market once the planned repairs are complete. It is a forecast of a future sale, so it has to come from evidence of what renovated homes actually sell for in the same area today.

Three figures get confused with ARV and none of them is it. The list price is what a seller hopes for. The tax assessment is a lagging administrative value. A current market estimate describes the house as it stands, before the work.

All three usually sit below the true ARV of a distressed property, and treating any of them as ARV understates the deal.

The opposite error is more expensive. Picking the best sale in the neighborhood and calling it the ARV overstates the deal, and every number that follows, the repair budget you can afford, the offer, the profit, inherits the error at full size.

The comparable sales method, step by step

The method has not changed in decades because it works: find sales that resemble the finished house, normalize them for size, adjust for the differences that remain, and take a weighted view. Five steps.

1. 1

   Define the finished product first

   Write down what the house will be after the rehab: bedrooms, bathrooms, square footage, finish level. You are pricing that house, not the one you are buying. A comp that matches the current condition tells you the as-is value, which is a different number.
2. 2

   Pull closed sales, not listings

   Start within half a mile and the last six months, and widen to a mile and twelve months only if you cannot find three. Closed sales are evidence. Active and pending listings are opinions about what a seller hopes to get.
3. 3

   Filter for genuine similarity

   Same property type. Square footage within about 20% of the subject. Same bedroom count or one off. Similar age and lot. Renovated condition. Same school zone and, in most cities, the same side of any major road or rail line.
4. 4

   Convert to price per square foot and weight

   Divide each sale price by its living area. Weight the closest, most recent and most similar comps highest. A sale from last month across the street counts for more than one from eight months ago at the edge of your radius.
5. 5

   Adjust for what still differs

   Garage, extra bathroom, pool, finished basement, lot size and view each carry a local dollar value. Adjust the comp toward the subject: if the comp has a garage and the subject will not, subtract the garage's value from the comp before you average.

Sorting comps by price, size, distance and a similarity score makes the weighting step mechanical, and excluding a sale that does not belong should recalculate the ARV rather than send you back to a spreadsheet.

Example uses public listing data for illustration. See disclaimer.

A worked example: from three comps to an ARV

The subject is a 1,500 square foot, three-bedroom house that will be fully renovated but has no garage. Three renovated sales within half a mile closed in the last five months.

The ARV then feeds the offer. Under the flipper's 70% rule with a $40,000 repair budget, the maximum purchase price is $199,000 × 0.70 − $40,000 = $99,300. Had the ARV been set from Comp B alone at $140 per square foot, the ceiling would have been $107,000, about $7,700 of extra price paid for nothing.

Adjusting ARV for condition and finish level

Renovated is not one thing. A landlord-grade refresh and a designer remodel sell at different prices in the same block, and the comps you choose have to match the finish level you will actually deliver.

Two rules keep the adjustment honest. Never price a rental-grade rehab off retail-flip comps. And be suspicious of any ARV that requires the subject to become the most expensive sale the street has ever seen; the buyer pool for that house is small and the appraiser will push back.

Where automated valuations fit

An automated valuation model estimates a property's current market value from surrounding sales in seconds. It is the fastest way to assemble a comparable set, and the wrong number to write on an offer for a distressed house, because it prices the property as it sits today.

The useful workflow is to take the AVM's comparables, keep the renovated ones, exclude the rest and read the ARV from what remains.

Smart Rental Investor's valuation returns the estimate with a low-to-high range and each comparable sale with its price, size, distance and match strength, so that filtering takes a minute rather than an afternoon.

Example uses public listing data for illustration. See disclaimer.

The ARV mistakes that kill deals

Most bad flips were bad on paper before closing. The paper was wrong in one of a handful of predictable ways.

• Using active listings as comps. Asking prices run above closing prices, and the listing that has sat for 90 days is telling you the ceiling, not the value.
• Crossing a boundary. The same floor plan across a highway, a school line or a neighborhood name can be worth 15% less. Distance in miles is not the same as distance in market.
• Ignoring the date. A sale from last spring in a market that has softened since overstates value. When the market is moving, weight the most recent sales and shorten the window.
• Averaging in an outlier. One unusually high sale, an estate sale to a neighbor, a corner lot, a house with an accessory unit, pulls the average up. Look at the spread of your comps, and when one sits far from the others, find out why before you keep it.
• Skipping the stress test. Rerun the deal at ARV minus 5% and minus 10%. If the profit disappears at minus 5%, the deal has no margin for an appraisal that comes in light or a market that cools during the rehab.

Investor purchase prices are the cross-check. When nearby flips are being bought at 60% to 65% of their resale value and your offer sits at 75% of your ARV, either your ARV is high or your offer is. Our guide to what investors are paying covers how to find those purchases.