Help me understand ARV

6 Replies

Please help me understand ARV it seems like it can be very broad.

@Eli Kalen , not sure what you mean by that. 

ARV is somewhat subjective based on what comps you are looking at for estimating the value of a property once you complete renovations. But ultimately, ARV is the price someone is willing to pay you for that property when you sell it...or, the refi amount a bank is willing to give you for it, once you finish renovations.

@Russell Gronsky I guess i'm having a hard time figuring out  what someone will pay for a property using comparable property. Or an average price  that an appraiser will value it at. I did just start exploring Trulia which seams to have given a little bit of in sight.

I working on ARV so I can get my BRRRR #'s on point.

@Eli Kalen If you’re looking at refinancing, it boils down to what the appraiser thinks the property is worth. You run into issues with that all of the time in the forums. The rehabber wants to protest the appraisal because it’s too low and they can’t pull all of their money out. If comps in the neighborhood sell for $100K that likely means you’ll come in close to that. You’ll have a hard time (I think) having an appraiser think the property is worth $150K because of fit-and-finish or a new roof or replacing electrical or anything else. So look at the sold properties and see what the average on sells for, what the best in the neighborhood has sold for, and figure out those constraints.

@Eli Kalen , get on redfin and search for houses recently sold (within the last 3 months) in the neighborhood with similar bedrooms, bathrooms and square footage. Like @Andrew Johnson said, your finishes will not bump up your value above comparables too much. Maybe a little. There is a way to sometimes get a better appraisal, that's if the appraiser will take a bigger house as a comp and gives you a percentage of that. 

For example, you've renovated a 2/2 townhome and other 2/2's in the hood have been selling for $200k. However, a nearby 3/2 SFR with 1300 sq ft sold for 300K. An appraiser will select 3 comparables to bump against your property. SOMETIMES, the appraiser will accept the SFR as a 75% comp (or maybe some other percentage) to your townhome along with 2 other comps that are townhomes just like yours. Why is this important? Because if you had 3 townhomes just like yours as comps, and they all sold for around $200K, then yours will be appraised at $200k. BUT, with 2 townhomes and 75% of the SFR, you now have $200K, $200K and $225K from the SFR. So you can probably land somewhere in the $206K-$210K range.

This is all subjective and based on the appraiser. But, you'll find that a lot of things about RE is subjective and trust me, that is a beautiful thing!

The ARV is simply the value the property will have after being repaired (After Repair Value). So if you're looking at a dump, you would compare it to other similar properties in the area that are fixed up and nice. Of course, this is an inexact science and in many ways it should be called the AARV (Approximate After Repair Value). But if you evaluate the comparables carefully, you can get pretty close.

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