CALCULATING ARV ADJUSTMENTS

16 Replies

Is there video I can watch of how to calculate ARV adjustments for any market?

Ive been having hard time figuring out by how much to adjust the comps up or down.

Does anyone have a step by step guide how to calculate ARV adjustment?

For example if the comp had an extra bedroom how would you calculate to adjust ARV down?

Or if the comp is built a decade earlier, or is in better condition, or is on better school district how would you determine the adjustment amount?

Thanks!

@Jason Ma this is all part of the "art" of running comps and getting your ARV. Lately I have been treating them like an appraisal. I have a few appraisals in my folders and use the adjustments they used. $30/SF for main living space. $10/SF for decks/patios and basement living space. $3000/acre. I don't know that this is the best way, however I have seen it compared with realtor CMAs and my numbers are usually right where those come in. I do my best to get houses in the same area, similar style, similar age, and if possible only use renovated houses. If there is anything that's tough to adjust (exact location) i am just conservative.

Originally posted by @Brian Pulaski :

@Jason Ma this is all part of the "art" of running comps and getting your ARV. Lately I have been treating them like an appraisal. I have a few appraisals in my folders and use the adjustments they used. $30/SF for main living space. $10/SF for decks/patios and basement living space. $3000/acre. I don't know that this is the best way, however I have seen it compared with realtor CMAs and my numbers are usually right where those come in. I do my best to get houses in the same area, similar style, similar age, and if possible only use renovated houses. If there is anything that's tough to adjust (exact location) i am just conservative.

 Thank you. How would you get those appraisal amounts in a new market? Would you just divide the value of the patio by the square foot?

I also noticed that you used the living square foot and not the total square foot. Do you consider the total square foot when calculating ARV?

Originally posted by @Brian Pulaski :

@Jason Ma this is all part of the "art" of running comps and getting your ARV. Lately I have been treating them like an appraisal. I have a few appraisals in my folders and use the adjustments they used. $30/SF for main living space. $10/SF for decks/patios and basement living space. $3000/acre. I don't know that this is the best way, however I have seen it compared with realtor CMAs and my numbers are usually right where those come in. I do my best to get houses in the same area, similar style, similar age, and if possible only use renovated houses. If there is anything that's tough to adjust (exact location) i am just conservative.

I found this. video on youtube on how to do CMA. Is this what you are talking about?

https://www.youtube.com/watch?v=pq0at1xPVdE

@Jason Ma I am in a new market, however when i bought my current house, I got a copy of the appraisal. The values he used up/down almost mirrored my last market (central CT), so I simply used what I "knew".

As far as a patio, if my house didn't have one, but a comparable house had a 200 SF one, then I would adjust by 200 SF x $10/SF or $2000. It is not by any means that this is exact, however it helps me get an idea, as well as gets me solid comparables for the day an actual appraisal happens.

Regarding living verse total SF, I feel weird saying this, but what do you mean total SF? If a house is a 1000 SF ranch with a full unfinished basement, I compare it as a 1000 SF house. If it has a 500 SF section of the basement finished, I treat that area as the appraisers did, which was a reduced $/SF amount. What other SF would be included in the total?

Originally posted by @Brian Pulaski :

@Jason Ma I am in a new market, however when i bought my current house, I got a copy of the appraisal. The values he used up/down almost mirrored my last market (central CT), so I simply used what I "knew".

As far as a patio, if my house didn't have one, but a comparable house had a 200 SF one, then I would adjust by 200 SF x $10/SF or $2000. It is not by any means that this is exact, however it helps me get an idea, as well as gets me solid comparables for the day an actual appraisal happens.

Regarding living verse total SF, I feel weird saying this, but what do you mean total SF? If a house is a 1000 SF ranch with a full unfinished basement, I compare it as a 1000 SF house. If it has a 500 SF section of the basement finished, I treat that area as the appraisers did, which was a reduced $/SF amount. What other SF would be included in the total?

Sorry for the confusion. By "total SF" I meant lot size. So when calculating $/ per SF or ARV do you use/compare the "living SF" or lot size?

Also how did you know the SF of patio? Did you just. ask? 

Thanks. 

@Jason Ma I described above, the calculation I have seen used for lot size is $3000/acre. A 1 acre lot would be $3000 less ARV than a 2 acre, etc.

In my area improvements are listed on the Assessors site, giving the SF size.

Originally posted by @Brian Pulaski :

@Jason Ma I described above, the calculation I have seen used for lot size is $3000/acre. A 1 acre lot would be $3000 less ARV than a 2 acre, etc.

In my area improvements are listed on the Assessors site, giving the SF size.

 Thank you. Last question, how would. you calculate adjustments for factors that are less tangible like the age or condition of the property while being "conservative " as you said above? That one of problems I was having was my realtor couldn't find comps in same age, condition, and neighborhood because it was a multiunit.  

As far as age, I have been using a multiplier if it is more than a 10-15 year difference. I usually can find houses that are built in the same timeframe, so rarely do I run numbers adjusting for age.

as far as condition, all of the houses I flip are considered a C2 for property condition rating. A C1 is brand new. C2 is renovated (being very basic here), C3 being cared for but not renovated. C4 is cared for but with some deferred maintenance. C5 is with a bit of deferred maintenance, and C6 is in poor condition. I'm not sure how universal these codes are, however I do my best to find renovated comps. If I don't, I like to make sure the comps are C3 condition. This is where there will be a buffer of sorts. If you have two similar houses one a C2 fully renovated and a C3 in very nice original shape and the price is the same... the renovated house should sell first.

Just as an FYI, this system is something I have been using since moving to NY. Back in CT where I did my flips, I actually never really did ARV comps (if you can believe it). I grew up in town and honestly had a good feel for what houses would sell for. I would confirm a sale or two in that range in the area, be a little conservative and make my offer based on that. My new market people seem to be paying significantly more for distressed houses, which has led me to come up with an ARV system I am comfortable with. Just wanted to be transparent with it.

Hey @Jason Ma hope you're not getting swept up in the fires going on in Sunland.  

To answer your original question, what you're looking for is the value of amenities in a particular neighborhood. The best way to find those values is either to ask a local knowledgable realtor, or to extract them by doing a comparative analysis on like properties with one that doesn't have that particular feature, and the same way that you wold do a CMA.

Originally posted by @Kuba F. :

Hey @Jason Ma hope you're not getting swept up in the fires going on in Sunland.  

To answer your original question, what you're looking for is the value of amenities in a particular neighborhood. The best way to find those values is either to ask a local knowledgable realtor, or to extract them by doing a comparative analysis on like properties with one that doesn't have that particular feature, and the same way that you wold do a CMA.

 thank you.... Do you have an example this that I can see?

Originally posted by @Jason Ma :
Originally posted by @Kuba F.:

Hey @Jason Ma hope you're not getting swept up in the fires going on in Sunland.  

To answer your original question, what you're looking for is the value of amenities in a particular neighborhood. The best way to find those values is either to ask a local knowledgable realtor, or to extract them by doing a comparative analysis on like properties with one that doesn't have that particular feature, and the same way that you wold do a CMA.

 thank you.... Do you have an example this that I can see?

Here's a rough example:

If you look at the difference between the improved and unimproved properties then you can determine that improvements are are roughly worth $58/sqft 

(148+140)/2-(89+83)/2 = $58/sqft

that you can go back and add to your CMA to determine your ARV.

Thank you sir


Originally posted by @Kuba F. :
Originally posted by @Jason Ma:
Originally posted by @Kuba F.:

Hey @Jason Ma hope you're not getting swept up in the fires going on in Sunland.  

To answer your original question, what you're looking for is the value of amenities in a particular neighborhood. The best way to find those values is either to ask a local knowledgable realtor, or to extract them by doing a comparative analysis on like properties with one that doesn't have that particular feature, and the same way that you wold do a CMA.

 thank you.... Do you have an example this that I can see?

Here's a rough example:

If you look at the difference between the improved and unimproved properties then you can determine that improvements are are roughly worth $58/sqft 

(148+140)/2-(89+83)/2 = $58/sqft

that you can go back and add to your CMA to determine your ARV.

Originally posted by @Brian Pulaski :

As far as age, I have been using a multiplier if it is more than a 10-15 year difference. I usually can find houses that are built in the same timeframe, so rarely do I run numbers adjusting for age.

as far as condition, all of the houses I flip are considered a C2 for property condition rating. A C1 is brand new. C2 is renovated (being very basic here), C3 being cared for but not renovated. C4 is cared for but with some deferred maintenance. C5 is with a bit of deferred maintenance, and C6 is in poor condition. I'm not sure how universal these codes are, however I do my best to find renovated comps. If I don't, I like to make sure the comps are C3 condition. This is where there will be a buffer of sorts. If you have two similar houses one a C2 fully renovated and a C3 in very nice original shape and the price is the same... the renovated house should sell first.

Just as an FYI, this system is something I have been using since moving to NY. Back in CT where I did my flips, I actually never really did ARV comps (if you can believe it). I grew up in town and honestly had a good feel for what houses would sell for. I would confirm a sale or two in that range in the area, be a little conservative and make my offer based on that. My new market people seem to be paying significantly more for distressed houses, which has led me to come up with an ARV system I am comfortable with. Just wanted to be transparent with it.

 This is gold. Thank you

Is the new ARV system that you are using in NY the same system described above ?

Originally posted by @Brian Pulaski :

As far as age, I have been using a multiplier if it is more than a 10-15 year difference. I usually can find houses that are built in the same timeframe, so rarely do I run numbers adjusting for age.

as far as condition, all of the houses I flip are considered a C2 for property condition rating. A C1 is brand new. C2 is renovated (being very basic here), C3 being cared for but not renovated. C4 is cared for but with some deferred maintenance. C5 is with a bit of deferred maintenance, and C6 is in poor condition. I'm not sure how universal these codes are, however I do my best to find renovated comps. If I don't, I like to make sure the comps are C3 condition. This is where there will be a buffer of sorts. If you have two similar houses one a C2 fully renovated and a C3 in very nice original shape and the price is the same... the renovated house should sell first.

Just as an FYI, this system is something I have been using since moving to NY. Back in CT where I did my flips, I actually never really did ARV comps (if you can believe it). I grew up in town and honestly had a good feel for what houses would sell for. I would confirm a sale or two in that range in the area, be a little conservative and make my offer based on that. My new market people seem to be paying significantly more for distressed houses, which has led me to come up with an ARV system I am comfortable with. Just wanted to be transparent with it.

I recommend the bigger pockets books by j scott. They’re dry ( as expected) no nonsense books which will go over comps and ARV in nauseating detail.

The Book on Flipping Houses
https://g.co/kgs/ZGEWrt

The Book on Estimating Rehab Costs
https://g.co/kgs/QuTxTe

JScott has a blog post at BP that includes a file that goes through a basic ARV exercise. It's a great starting point and you can adjust the numbers accordingly to your market (eg trying to price out what an extra bathroom is worth in your area, or a garage, or patio, etc).

Sorry, I can't find it right now.

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