ARV Definition and Why It Matters
After Repair Value (ARV) represents what a property would sell for on the open market once it has been fully renovated to a competitive standard for the neighborhood. It is not the current as-is value of the property, and it is not the replacement cost. ARV reflects what a buyer would pay for the finished product.
ARV matters because every other number in a real estate deal flows from it. Your maximum offer price, expected profit, loan amount (for hard money or conventional financing), and go/no-go decision all depend on an accurate ARV. If your ARV is wrong, every calculation built on top of it will be wrong too.
The National Association of Realtors (NAR) reports that there are over 600,000 active house flippers in the United States, and the vast majority rely on ARV calculations to evaluate deals before making offers.
Who Uses ARV?
ARV is used by virtually every type of real estate investor:
- House flippers use ARV to calculate profit potential and determine their maximum offer price using the 70% rule
- BRRRR investors use ARV to estimate how much equity they can pull out during the refinance stage
- Wholesalers use ARV to market deals to their buyer list and set assignment fees
- Hard money lenders use ARV to determine loan-to-value ratios and maximum loan amounts (typically 65-75% of ARV)
- Rental investors use ARV to assess whether a property will appraise high enough after renovation to support a conventional refinance
How ARV Is Calculated
ARV is calculated using a comparative market analysis (CMA) approach. You find recently sold properties (comps) that are similar to what your property will look like after renovation, then adjust for differences in size, features, and location.
The key distinction is that your comps should reflect the after-renovation condition, not the current condition of the subject property. You are comparing your future finished product to other recently sold finished products in the same area.
A typical ARV analysis uses three to six comparable sales within a half-mile to one-mile radius, sold within the last three to six months. Each comp is adjusted for differences such as square footage ($20-50 per sq ft), bedroom count ($3,000-10,000 each), bathroom count ($5,000-15,000 each), and overall condition.
ARV = Average Adjusted Sale Price of Renovated Comparable PropertiesARV vs Other Property Valuations
ARV is different from other common property valuations. The as-is value is what the property is worth right now, before any repairs. The assessed value is what the county tax assessor assigns for property tax purposes (often below market value). The appraised value is a licensed appraiser's opinion of value. The replacement cost is what it would cost to rebuild the property from scratch.
ARV specifically estimates the post-renovation market value based on comparable sales data. It is forward-looking and assumes a specific scope of renovations will be completed.
How ARV Affects Your Offer Price
Most investors use the 70% rule as a starting point for determining their maximum offer price based on ARV. The formula is: Maximum Offer = ARV x 70% - Estimated Repair Costs. The remaining 30% covers your profit margin, closing costs, holding costs, and a buffer for unexpected expenses.
Maximum Offer = ARV x 70% - Repair CostsARV to Offer Price Example
Common Pitfalls with ARV
The biggest risk with ARV is over-estimation. Using comps that are too far away, too old, or not truly comparable leads to inflated ARV numbers. According to ATTOM Data Solutions, properties that sell below their estimated ARV often do so because the investor used comps from a different neighborhood or price tier.
Another common pitfall is not accounting for market changes between when you calculate ARV and when you actually sell. In a market that is cooling, a six-month renovation timeline could mean your actual sale price is lower than the ARV you calculated at acquisition.
Key Takeaways
- ARV is the estimated market value of a property after all renovations are complete
- It is the most important number in fix-and-flip, BRRRR, and wholesale investing
- ARV is calculated using adjusted comparable sales of renovated properties
- The 70% rule uses ARV to determine your maximum offer price
- Over-estimating ARV is the most common and costly mistake new investors make
Frequently Asked Questions
What does ARV stand for in real estate?
ARV stands for After Repair Value. It is the estimated market value of a property after all planned renovations and repairs have been completed. ARV is used by real estate investors, house flippers, wholesalers, and lenders to evaluate the profit potential of a deal.
Is ARV the same as appraised value?
No. ARV is an investor's estimate of what a property will be worth after renovation, based on comparable sales analysis. Appraised value is a licensed appraiser's opinion of a property's current market value. However, the methods are similar: both use comparable sales and adjustments to arrive at a value estimate.
How do lenders use ARV?
Hard money lenders and private lenders typically lend 65-75% of a property's ARV. For example, if the ARV is $300,000, a lender might approve a loan up to $225,000 (75% of ARV), which covers the purchase price and renovation costs. This protects the lender in case the borrower defaults.