Having a little "discussion" with my partner about setting the ARV on a flip based on the few comps available, vs. an analysis of market demand. In our area, there is high demand, very low inventory and very, very low supply of new construction or totally renovated homes. I say that we set a higher ARV based on homes in a wider area of equivalent neighborhoods that are new construction/fully updated, rather than nearby sold comps that are not equivalent in size or condition. It's the difference in the way an appraiser looks at comps vs. the way buyers shop, in my opinion. How have you made decisions on ARV?
@Sarah Lorenz either way it is still "comps' if you have to go farther away to find properties that are truly "comparable" then that is what you have to do. But it is not just distance, the area should have similar amenities, transportation, desirability etc.
An appraiser can go a farther distance if necessary, but will usually use closer properties and make adjustments for condition and features.
One thing that distinguishes top investors from the average Joe is a top investor can spot value where others do not.
An important question is how you will use the information. If you want to figure an ARV to price a property you are going to wholesale, you better use close by comps or your buyers won't accept your valuation. If you want to know what you can sell if for, and you are good at what you do, then, you use your best estimate. If you want to know what it is likely to appraise for (important when selling) then get to know how appraisers tend to view the area and how they would approach the situation.
A great tip I got from @J Scott was to get some appraisals of local properties and see how much the appraiser added or subtracted for features like a finished basement or an extra bathroom.
Hey @Sarah Lorenz , I agree with @Ned Carey comps are still comps especially with you are dealing with SFR's (4 or less units) and this comes down to knowing your market and being able to distinguish value that would be appealing to a buyer. At the end of the day, your ARV is set by the value or willingness of a buyer of your particular house. In your situation with high demand and low inventory, I would definitely test the market as we are in a sellers market and roll the dice to see what the market says. I hope this helps and best of luck!
Thanks, @Ned Carey and @Curtis Rouse I think we'll be rolling the dice on this one and seeing if I'm right or not with the higher ARV.