Finding the ARV of a property

9 Replies

Is there a formula for finding the arv of a property

The ARV of a property or the "After Repair Value" is simply the appraised and/or the marketable resale value of the property. To find the ARV you must calculate the average of the comparable comps within close proximity to the subject property. I suggest looking at three or more recently sold homes (within last 6 months if possible) with comparable size, condition and square footage. This will give you an estimated ARV for the subject property. Recently sold comps can be found on the MLS, courthouse and on marketing sites like Zillow.

If you are looking for more definitive numbers I suggest ordering a "subject to" appraisal.  The appraiser will ask you to provide a repair list to be included as part of the appraisal package.  The appraisal will be able to access the property and provide a two tier value, the first in as is condition and the second being the After Repair Value.  

Hope this information helps.  

@Christina Hoffmeier  give you the basics of it.  This is perhaps the most difficult part of fix and flipping.  You must be very careful in finding comps.   If you ask an agent to do an analysis they will typically find three or four recent sales and three or four current listings.  An appraiser will do the same.  Problem is, you don't know which ones an appraiser will choose.  So, as an investor, you need to look at ALL possible comps.  And you want to be conservative in your choice of comps.  Appraisers often are.

Comps also have to be as similar as possible to the subject (the property you're considering buying.)  Same style, close to the same size, same condition, same positives and negatives.  Often something that looks like a good deal turns out to have some big, un-fixable negative - busy road, train tracks, etc.  When that's the case, "comps" are only properties with the same big negative.

@Jon Holdman  

Hi Jon, 

have you dealt with unique properties that do not have comps. An example that I saw was a split level home approximately 2400 sq. feet but they changed the old garage area into living space and then added on a garage. Doesn't quite fit the split level model anymore, tri-level home, or two story home. Any idea how to value that type of home? 

Thanking you in advance for your input, 

Micheal 

@Micheal Rieves Most of the time I find myself, if I am saying something is "unique" also means a limited number of buyers.  Unless its one special area, and an area you know well ... you want to buy properties that offer the most potential to be marketed to the most number of buyers.  Also hardest sometimes to price on comps with the unique ones.  Definitely make sure to do your homework! Good luck... 

@Micheal Rieves hard to comp properties are dangerous.  If there are no good comps you are really at the mercy of the appraiser.  My advice is to avoid hard to comps situations unless you're very confident you have a very good deal.

But I'm not sure that applies here.  I assume you're talking about a "split level" as described in wikipedia:

http://en.wikipedia.org/wiki/Split-level_home

Around here those are more commonly called tri-levels.  The upper part of the two story end and the middle part seem to generally be treated as ground floor footage.  The lower part of the two story end is treated as basement.  Here basements add very little value.  Basement footage is valued at about 10% of ground floor footage.  Converting that from a garage to living space has a slight, but minimal effect on the value.  It is essentially a basement finishing change.  I researched this earlier this year trying to identify the value of finished vs. unfinished basement space trying to deal with a tax loss situation. I couldn't find evidence to support more than a minimal change in value.  My conclusion was that finishing a basement may add value to the owner, but adds little value to the property.

Adding an attached (I assume) garage does increase the space in the house.  I would guess the appraiser would treat this as a tri-level with finished basement space and a garage and use factors for the basement and garage based on local comps.

@Nathan Brooks  

Hi Nathan, 

I have to admit my biggest fear is that the market on that property would not be there. It is too bad because the property is in a very good neighborhood. The comps are what had me second guessing it. The deal was marginal at best and because it is hard to classify the comps, it made me even more nervous about it. Thank you for your input. 

Micheal 

@Jon Holdman  

The deal would not have been very good to risk the comps coming from the appraiser. Basements here do not carry any value either. A house can sell for $95 a square foot above ground and $15 a square foot below grade. It has been quite frustrating once I found that out. 

We have tri-level (what you listed from wikipedia), split level, multi-level etc... A split level here is you walk in the front door and you go down stairs into the basement (usually finished) area or you can go up the stairs into the rest of the house. My residence is a multi level (family room on the main floor; kitchen, dining room, and living room on 2nd level; all the bedrooms on the top level; and it also an unfinished basement. 

Thank you again for the input, 

Micheal  

@Micheal Rieves don't let it get you down! We have to look at lots of properties ... get our process, what we look for, whats a good deal ... get those things down.  It's FREE practice! So keep your head up and keep after it.

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