How to Calculate Comparable Sales in Real Estate to Determine ARV

When investing in real estate, one of the most crucial steps is determining the After Repaired Value (ARV) of a property. This value indicates the potential worth of a property after necessary repairs and renovations have been conducted. A key factor in calculating ARV is understanding how to use comparable sales, or "comps." Here's a step-by-step guide to help you navigate this process.

Step 1: Understand What A 'Comp' Is

In real estate terms, a 'comp' refers to a recently sold property that is similar to the property you're evaluating, in terms of size, location, condition, and features. Comps are used as a benchmark to set or negotiate the price of a property.

Step 2: Identify Suitable Comps

Start by looking for properties in the same neighborhood or within a 1-mile radius. They should be similar in size (+/- 10%), age, style, and have the same number of bedrooms and bathrooms. The sale should also have taken place within the last six months.

Step 3: Adjust for Differences

No two properties are exactly alike. So, if there are significant differences between your property and the comp (like an extra bathroom or a larger lot), make adjustments to the comp's sale price accordingly. For example, if a comp has an additional bathroom and it sold for $300,000, and you know that a bathroom adds around $20,000 in value in your market, then the adjusted price of the comp would be $280,000.

Step 4: Average It Out

Once you've adjusted all your chosen comps, calculate the average sale price. This gives you a reasonable estimate of your property's potential market value.

Step 5: Calculate the ARV

The final step is to calculate the ARV. Multiply the average price per square foot of your comps by the square footage of your property.

So, if the average price per square foot is $150, and your property is 2000 sq ft, then the ARV would be $300,000.

Remember, calculating comps and ARV is part science, part art. While these steps provide a guideline, the real estate market is dynamic and influenced by various factors. Always stay updated with your local market trends and get professional advice when needed.

By mastering the skill of calculating comps and ARV, you'll be well-equipped to make informed decisions in your real estate investment journey. Click here and start running comparable sales. Happy investing!