Calculating ARV, hung up on square footage?

2 Replies

Hello everyone, as of late I thought I was pretty confident on my ARV analysis skills, but lately I find myself meticulously adhering to square footage as I look at comps a little too much.

I suppose the best way to explain where I'm stuck in calculating the ARV is to provide an example.

I have a ranch and I'll like to add a full second level. Additionally, I will pave part of the backyard to have enough space to park one or two cars. Let's say for discussions sake the property is 1,000 sqft and after rehabbing it we are now at 2,000 sqft.

Now my question is when I look at comps, I must look at comps that are around the 2,000 sqft since we have now increased the square footage of the subject property correct? 

Thank you in advance. 

@Alexander Ludena Yes, you should definitely consider comps that are of the new more similar size but I've seen people take a strictly square footage approach and get caught by surprise when that appraisal comes back.  

You should review a sample of an appraisal  to see what kind of adjustments inspectors tend to make in your neighborhood.  If you know any other property owners in the neighborhood who recently completed a sale or refinance they will likely have a copy of the appraisal.

Have your realtor pull all the sales comps within a mile or less and start picking the most similar properties in terms of square footage, bed/bath mix, etc.  Focus on the MOST recent sales within 6 months or less if possible.  Every neighborhood is different and adjustments can vary a lot from market to market based on things like a pool, porch, basement, 1 vs 2 car garage, age, building materials etc etc. 

@Alexander Ludena Yes, you want to use comps that are most similar to what your property will be like after all work is completed. If you are remodeling, you want to find the value of those sold most recently that are also remodeled. You will want to adjust your value accordingly for properties that are for example, well maintained, with some updates, smaller/larger square footage, pool, etc.

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