What Is After-Repair Value?
After-repair value, or ARV, is the potential sales price of a home or investment property, as determined by the market. Keep in mind that the word “repair” is used very loosely when determining ARV—it considers more than just repairing any major defects. Also included in ARV are things like updating floors, replacing counters, painting, and remodeling bathrooms.
Imagine that you live next to a house recently renovated with granite counters, brand new flooring, and updated bathrooms. Even if your properties were similar before they updated, their home is now worth more than yours. If they listed their home, it wouldn’t be reasonable for you to think that your home would sell for the same price without you doing those same updates first.
Running a Comparative Market Analysis
WANT TO LEARN MORE ABOUT REAL ESTATE MARKET ANALYSIS?
A comparative market analysis
—also called CMA—essentially means pulling comps. There are many ways that you can pull comps, such as Zillow or Trulia. The most important thing to keep in mind is using a reputable source to pull your information.
Before diving into real estate investing, make sure you understand how to compare markets and properties. Whether you're trying to decide between investing in Boise or Sacramento—or you're just comparing two similar homes—this guide will walk you through all the numbers you need to know. From calculating cash-on-cash return to running a comparative market analysis, the experts at BiggerPockets demonstrate the steps you need to follow and the statistics you must know.
Read BiggerPockets' Beginner's Guide to Real Estate Market Analysis.
Start by doing a search for nearby properties that have sold within the last six months. The more recent, the better. When determining ARV, you want to find properties that are as similar to yours as possible—but updated. It is best to find at least three. Make note of the number of beds and baths, square footage, and lot size. This is a good starting points for analysis.
Price per square foot
When evaluating ARV, we recommend using price per square foot. To calculate the price per square foot of comps, you just have to take the price the home sold for and divide it by the square footage of the home.
For example, if a home sold for $100,000 and was 1,000 square feet, that home’s price per square foot would be $100.
Price per square foot is very relative to the area in question—both by city and sometimes even by neighborhood. That is why we try to pull comps as close to the home in question as possible.
How Do You Calculate After Repair Value?
Now that we have some comparable sold home prices in price per square foot, we can figure out our home’s ARV. The equation is simple: Take the average price per square foot and multiply it by the square footage of your property.
Using the price per square foot from the example above, if our home was 1,200 square feet, our calculated after repair value
would be $120,000.
What Can Affect ARV?
Most of the value in your home is determined by the number of beds and baths, square footage, and lot size. But there are other things that go into a home’s value, too.
If your home has a garage and none of the comparable homes did, then you could bet that your home is going to be worth more in the same condition. Sheds, carports, tornado shelters (given location necessity), or other amenities can also add value to your home and should be considered when looking at comparative homes.
What doesn't affect ARV
There are many, many more things that won’t have an affect on price but can affect how quickly you sell the home. You shouldn't consider these when determining ARV.
For example, taking down a wall between two living spaces to create a more open concept will not add a whole lot of value to the house, but it will create a much more appealing home to the market and cause it to sell faster. And paint color can dramatically affect how desirable a home is to potential buyers, but it won’t make much of a difference to the price you can sell the home for.
Why You Should Get a Second ARV Opinion
Once you have determined an estimated value on your own, it is a good time to cross-check that amount with other people who do this more often. They can verify or clarify your findings. Reach out to top-performing real estate agents, local property managers, or other investors. These people's opinions can offer valuable insights. It won't be necessary to do this every time once you get the hang of using comps to estimate values, but it is a good practice when you are starting out.