ARV

[Vidal LeClaire]

is this the best way to find ARV...

70%ARV - repairs - wholesale fee = max offer

????

[Jeff Copeland]

That is a widely used formula for determining your max offer, but it really has nothing to do with determining ARV.

The After Repair Value (ARV) is the estimated full retail price of the property after it is repaired and in "tip top" condition and ready for sale, and you would need to plug that number into the formula above.

For example, if you determine a property would retail for $100k, you could use that as your ARV. If the property needs $20k in repairs and you want to make a $2k assignment fee, your formula would be:

1. $100k (ARV) times 70% = $70k

2. $70k minus $20k (repairs) minus $2k (assignment fee) = $48k

Thus, you might use $48k as your max offer for the property*.

(*Even this varies a lot from market to market, and you may find with a lot of competition from other investors, you'd be wasting your time making offers at this level...or overpaying if your market is depressed...bottom line, get to know your market.)

ARV can be tricky to determine, especially without access to the MLS - and I'd be very cautious about using zestimates, property appraiser estimates, or other mass appraisal tools, because these can vary wildly. Also note that you can't use list prices, you need to look at actual sold prices - usually within the last six months, within as narrow a radius as possible to the property you're trying to value, on very similar properties - in other words, Comparable Sales, or "Comps".

I recommend getting your hands on some old appraisals from a professional appraiser, so you can see the process they use to determine market value.

I also recommend making friends with a realtor who will "run comps" for you occasionally. Also beware that some realtors are in the habit of just looking at an automated CMA (comparative market analysis) that spits out a number - these too can be way off, especially now that the market is heating up in many areas.

Bottom line, learn your market, and learn how to evaluate comps yourself, then you have no one else to blame if you under or over price a property.

One final note - you don't actually have to buy properties in your market to evaluate and monitor their list price, days on market, and sale price - pick several representative properties in your area to monitor and evaluate as test cases so you can learn by doing, but without risking any money or wasting anyone's time.