How Do You Estimate ARV on a Fix-and-Flip?
Short answer: ARV (after-repair value) is what a property will sell for once your renovation is complete. You estimate it the way an appraiser does: pull recent sales of comparable, fully renovated homes in the immediate area – ideally within the last 3-6 months, within about a mile, similar in size (livable sq ft and lot), beds, baths, and style – then adjust for differences and settle on a price per square foot the finished property can realistically command. Estimating a realistic ARV is incredibly important, because it drives your loan amount, your budget, and your profit.
By Andrew J. Liersch III — Founder & CIO, Slingshot Investments. 10+ years in private lending, $500M+ funded. Former Wells Fargo Private Mortgage Banking, Bear Stearns, and Deloitte Consulting.
Why ARV is the number that drives everything
Your lender sizes the loan against ARV. Your profit is ARV minus total cost. Your margin for error is whatever cushion sits between the two. Overstate ARV by 8% and you haven’t just lost a little upside – you’ve eroded the entire buffer that protects you when the rehab runs over or the market softens. Serious investors treat ARV estimation as the discipline it is, not an optimistic guess. (It’s the first thing a lender stress-tests)
How to pull comps the right way
Start with sold, not listed. Active listings tell you what sellers hope to get. Closed sales tell you what buyers actually paid. Use sold comps as your basis; use actives only to read current competition.
Tighten the filters:
– Recency – last 3-6 months. In a moving market, older sales mislead.
– Proximity – within about a mile, and ideally the same neighborhood or subdivision. Crossing a school-boundary or a busy street can change value materially.
– Similarity – comparable square footage, bed/bath count, lot size, age, and style.
– Condition – this is the one investors miss. Your comps must be renovated homes, finished to roughly the level you’re targeting. Comparing your finished flip to tired, un-renovated sales understates ARV; comparing it to luxury renovations overstates it.
Adjust, don’t average blindly
Few comps match perfectly. Adjust for the differences: a comp with an extra bedroom, a bigger lot, a pool, or a superior location should be adjusted down toward your subject; an inferior comp adjusted up. The goal is a defensible price per square foot for your finished product – not a raw average of whatever sold nearby.
Then sanity-check against the neighborhood ceiling. Every area has a price buyers won’t exceed regardless of finishes. If your ARV pushes past the top sale the neighborhood has ever supported, that’s a red flag, not an opportunity.
The mistakes that sink deals
– Anchoring to listing prices instead of closed sales.
– Using un-renovated comps and crediting yourself the full spread.
– Ignoring location nuance – same zip code isn’t the same micro-market.
– Stale comps in a market that’s moved since they closed.
– Buying the optimism – rounding ARV up “because the finishes will be nice.” Finishes get you to market value, not above the ceiling.
Get a second read
Your own comp analysis should agree, roughly, with what a lender’s appraisal or BPO will conclude – because that independent valuation is what your loan is actually sized against. If your ARV and the appraiser’s diverge sharply, the deal gets repriced or shrinks. A good private lender will give you an honest read early, before you’re committed.
The San Diego angle
San Diego’s micro-markets shift block to block – a canyon view, a walkable corridor, a school boundary can move value more than square footage does. Generic per-foot averages across a zip code routinely miss. Comps have to be pulled at the neighborhood level, and the condition of those comps matters as much as their location.
Frequently asked questions
What’s the difference between ARV and current value?
Current value is the as-is, un-renovated price today. ARV is the projected value after the planned renovation. The spread between them, minus your costs, is your profit.
How many comps do I need?
At least three to five solid, recent, renovated comps. More is better; one or two is not a basis for an ARV.
Who determines the official ARV on my loan?
The lender orders an independent appraisal or broker price opinion. Your estimate guides your offer; the lender’s valuation sizes the loan.
Can I use Zillow or Redfin estimates?
As a rough starting point only. Automated estimates don’t account for condition or renovation level and shouldn’t be the basis for a purchase decision.
What if my ARV is wrong?
On the high side, your margin evaporates and you may need more cash at closing when the loan comes in smaller. Conservative ARV protects the whole deal.
Want a second opinion on your numbers?
Slingshot Investments underwrites San Diego flips every week and will give you a straight read on your ARV and whether the deal pencils – before you’re locked in. Run your deal by us.
Related reading: How do private lenders underwrite a fix-and-flip loan?
