The Right Comps for Accurate ARVs

4 Replies

Hello All! 

My partner and I are currently looking at a property in MD and trying to calculate an accurate ARV based on our comps. There are 5 comparables; many of which were sold in the last 6 months As-is. There were a few that had significant renovations. My question is should we be looking only at homes that had top of the line renovations to get the best ARV or mixture of both?

The home has had several updates: 2 kitchens, 1 bathroom, electric, HVAC, cosmetic. But I would say they are basic level renovations.

I believe you want your comps to be as comparable as possible (pun intended). If you intend to do a high-end rehab, then look at similar properties that were rehabbed to a similar level and then sold. If you intend to do a basic rehab, then look for recent sales that were in similar condition.

Rarely are you going to find an exact match (unless you're looking at townhouses or condos - then it can be much easier), so you (and the appraiser) have to infer the value of things that don't match up exactly. 

For example - Consider two homes the same size and in very similar condition, one with a one car garage, and the other with no garage. 

  • If the house with a one car garage recently sold for $110k, all other things being fairly equal, an appraiser might deduct $10k for the value of the garage and value your property at $100k. 
  • But if your property has a high-end kitchen and the other one doesn't, an appraiser might add $10k back and value yours at $110k.

You might try to get your hands on a few appraisals to learn how appraisers value a property and add/subtract value based on features, square footage, and fixtures/finish.

While I'm sure this varies wildly, I've found that some realtors rely too heavily on automated comps or CMAs when valuing properties, and these can be off by a wide margin. Ultimately, the appraisers word is gospel, so it really helps to understand their processes and duplicate them as best you can when looking at comps.

Hope that helps!

Try and find homes the fit as close to your end product as possible. You should use the comps from the recently sold as a guideline for what you need to do. If the recently sold has updated kitchen and baths with luxury appliances and fixtures your property should do the same. The closer you are and the more precise your product is to the comps makes your negotiations base purely on fact . House X sold for 300k because it has abc. Why should your house sell for 300k simple it has abc. If your end product adds more quality then you need to show it through your comps.

@Jeff Copeland Thank you for that example that makes a lot of sense. This property (a duplex) would be a great buy and hold. There aren't many updates that need to be done to make it tenant ready; a couple door replacements, small bathroom fixes, and cleaning out tell unfinished basement which the owner started to make into other apartment but ran out of money. I agree that the appraisal would help a lot in this instance. 

Thanks for you help!

Originally posted by @Shawn M. :

Try and find homes the fit as close to your end product as possible. You should use the comps from the recently sold as a guideline for what you need to do. If the recently sold has updated kitchen and baths with luxury appliances and fixtures your property should do the same. The closer you are and the more precise your product is to the comps makes your negotiations base purely on fact . House X sold for 300k because it has abc. Why should your house sell for 300k simple it has abc. If your end product adds more quality then you need to show it through your comps.

Shawn, that makes perfect sense. We looked at a home near by that had all the bells and whistles and was listed at $189k. The owner of the home we are looking at believes that he should get no lower than $165k (which does not have top of the line additions and based on that comparison alone, the home is way overpriced. I think taking Jeff suggestion about the appraisal will help us arrive to a more accurate ARV.

Thanks for your help!

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