What Is the ARV Formula?
The ARV formula is straightforward: take the average adjusted sale price of comparable properties (comps) that have already been renovated to a similar standard as your planned renovation.
In practice, most investors use three to six recent comparable sales within a half-mile radius that sold in the last 90-180 days. Each comp is then adjusted for differences in square footage, bedroom and bathroom count, lot size, condition, and location.
ARV = Average Adjusted Sale Price of Comparable PropertiesStep 1: Find Comparable Sales (Comps)
The foundation of any ARV calculation is finding the right comparable sales. A good comp meets these criteria: sold within the last 6 months, located within 0.5-1 mile of the subject property, similar in size (within 20% of square footage), same property type, and in similar post-renovation condition.
You can find comps through the MLS (if you have access), public records from the county assessor, real estate listing sites like Zillow and Redfin, or automated tools like PropLab that pull comp data automatically.
According to ATTOM Data Solutions, investors who analyze at least five comparable sales per deal achieve significantly more accurate valuations than those who rely on fewer data points.
Step 2: Adjust Each Comp for Differences
No two properties are identical, so you need to adjust each comp to account for differences from your subject property. Adjustments are added or subtracted from the comp's sale price.
Standard adjustments include: $20-50 per square foot for size differences, $3,000-10,000 per bedroom, $5,000-15,000 per bathroom, 5-15% for condition differences, and $5,000-20,000 for garage versus no garage. These figures vary by market, so always use local data.
- Square footage: Add/subtract $20-50 per sq ft depending on market
- Bedrooms: Add/subtract $3,000-10,000 per bedroom difference
- Bathrooms: Add/subtract $5,000-15,000 per bathroom difference
- Condition: Adjust 5-15% for renovation quality differences
- Garage: Add/subtract $5,000-20,000 for garage differences
- Lot size: Add/subtract $1-5 per square foot of lot difference
Step 3: Calculate the Average Adjusted Price
After adjusting all your comps, calculate the average adjusted sale price. This is your ARV. Many investors also calculate a weighted average, giving more weight to comps that are closer in proximity and more similar to the subject property.
For conservative underwriting, some investors discard the highest and lowest adjusted values and average the remaining comps. This helps eliminate outliers that could skew your estimate.
ARV Calculation Example
Step 4: Validate Your ARV
Before making an offer, validate your ARV by checking active listings in the area. If renovated properties similar to your planned finished product are listed at $300,000 but not selling, your ARV of $286,250 may still be too high.
Also consider market trends. In a declining market, the ARV based on past sales could overstate the property's future value. In an appreciating market, your ARV may actually be conservative. The U.S. Census Bureau reports that median home prices have appreciated an average of 4-6% annually over the past decade, though this varies significantly by market.
Common ARV Calculation Mistakes
The most frequent mistakes investors make when calculating ARV are using comps that are too far away, using outdated sales data (older than 6 months), failing to adjust for condition differences, cherry-picking high comps to justify a deal, and not accounting for market direction.
According to BiggerPockets, over-estimating ARV is the number one reason new investors lose money on their first flip. A conservative ARV estimate protects your downside and leaves room for unexpected costs.
Key Takeaways
- ARV equals the average adjusted sale price of comparable renovated properties
- Use 3-6 comps within 0.5-1 mile that sold in the last 6 months
- Always adjust comps for square footage, bedrooms, bathrooms, and condition
- Validate your ARV against active listings and market trends
- Conservative ARV estimates protect against unexpected costs
Frequently Asked Questions
How many comps do I need to calculate ARV?
Most investors use three to six comparable sales. Using fewer than three comps increases the risk of an inaccurate ARV. Using more than six is ideal when available, as it provides a more statistically reliable estimate. The key is finding comps that are genuinely similar to your planned finished product.
What is the 70% rule for ARV?
The 70% rule states that an investor should pay no more than 70% of the ARV minus repair costs. For example, if the ARV is $300,000 and repairs cost $50,000, the maximum offer would be $300,000 x 0.70 - $50,000 = $160,000. This rule builds in a margin for profit, closing costs, and unexpected expenses.
Can I calculate ARV without MLS access?
Yes. You can use public records from county assessors, recent sale data from Zillow, Redfin, or Realtor.com, and tools like PropLab that aggregate data from multiple sources. While MLS access provides the most comprehensive data, many successful investors calculate accurate ARVs using publicly available information.
How accurate is an ARV calculation?
A well-researched ARV calculation typically falls within 3-5% of the actual sale price. According to the National Association of Realtors, even professional appraisals have a 5-10% margin of error. The accuracy depends on the quality and relevance of your comparable sales, the accuracy of your adjustments, and current market conditions.