Why It Matters
ARV (after-repair value) = what the property will be worth when fixed. You pull 3–6 comparable sales within 0.5–1 mile, same bedroom/bath count, sold in last 90–180 days. Adjust for square footage ($/sf), garage, condition, and location. Average the adjusted values. That's your ARV. Fix-and-flip investors use it with the 70% rule: Max Offer = (ARV × 0.70) − rehab costs. A $250,000 ARV with $45,000 rehab = max $130,000 purchase. Get ARV wrong and you overpay or leave money on the table.
At a Glance
- What it is: Estimated value after repairs, derived from comparable sales
- Why it matters: Core of fix-and-flip underwriting; drives max purchase price
- Data source: MLS sold data, 3–6 comps, 90–180 day lookback
- Rule of thumb: 70% of ARV minus rehab = max all-in cost for flips
ARV = Average Comp Sale Price (adjusted for features)
How It Works
Pulling comps. Use the same criteria as appraisers: same bedroom/bath count, similar square footage (±15%), within 0.5–1 mile, sold in last 90–180 days. Prefer sold over pending or active—sold is what buyers actually paid. In thin markets (rural, luxury), extend to 1 mile and 6 months. Avoid foreclosures and estate sales unless they're your only comps—adjust down for distress.
Making adjustments. Comps rarely match exactly. Adjust for: square footage (local $/sf), garage (add $5,000–$15,000), condition (deduct for deferred maintenance), lot size, view. Keep adjustments reasonable—appraisers flag wild swings. A 100 sf difference at $120/sf = $12,000 adjustment. Document every adjustment so you can defend it to a lender or buyer.
Averaging and sanity check. Take the adjusted values, drop the high and low if you have 5+ comps, average the rest. Compare to BPO or fair market value from a broker. If your number is 15%+ above or below, recheck your comps and adjustments.
Real-World Example
Columbus, Ohio flip. You're evaluating a 3-bed, 2-bath, 1,400 sf ranch that needs $35,000 in rehab. You pull 4 comps:
- 1,380 sf, sold $218,000, 2 months ago — adjust +$2,400 for sf → $220,400
- 1,450 sf, sold $225,000, 4 months ago — adjust −$6,000 for sf → $219,000
- 1,320 sf, sold $205,000, 3 months ago — adjust +$9,600 for sf → $214,600
- 1,500 sf, sold $235,000, 1 month ago — adjust −$12,000 for sf → $223,000
Average: $219,250. Round to $220,000 ARV. 70% rule: ($220,000 × 0.70) − $35,000 = $119,000 max offer. You negotiate to $112,000. All-in $147,000. Sell at $218,000. Gross profit $71,000 before holding costs and selling costs.
Pros & Cons
- Objective—based on actual sales, not opinions
- Defensible—lenders and buyers understand comp-based valuation
- Replicable—same process for every deal
- Integrates with 70% rule—drives max purchase price for flips
- Comp-dependent—thin markets or unique properties lack good comps
- Lagging—comps are 1–6 months old; hot markets move fast
- Adjustment subjectivity—two investors can get different ARVs from same comps
- Ignores absorption—doesn't tell you how long it'll take to sell
Watch Out
- Cherry-picking comps: Using only the highest sales inflates ARV. Include all relevant comps; drop outliers with justification.
- Over-adjusting: $50,000 in adjustments on a $200,000 comp means your comp isn't comparable. Find better comps.
- Ignoring condition: Comps in "turnkey" condition don't reflect your post-rehab product. Adjust for any remaining delta.
- Market shift: In a declining market, 6-month-old comps overstate value. Use recent sales and apply a discount if needed.
Ask an Investor
The Takeaway
ARV calculation = comparable sales + adjustments = estimated fair market value after repair. It's the foundation of fix-and-flip underwriting. Pull 3–6 comps, adjust for size and features, average, and sanity-check. Use it with the 70% rule: Max Offer = (ARV × 0.70) − rehab costs. Get ARV right and your flip math works; get it wrong and you lose money.