How to Estimate ARV Without Paying for an Appraisal

After repair value is the only number in a rehab deal that you cannot look up. Purchase price is on the contract, the rehab budget comes from bids, and the loan terms come from the lender. ARV is an opinion, and the whole deal is priced off it. On an example house you expect to be worth $308,000, a 5% miss is $15,400, which at a 75% refinance is $11,550 of your cash that stays in the property.

You do not need a paid appraisal to get a defensible number. You need recent sold data, county records, and the discipline to do what an appraiser does: pick a small set of close comparables, adjust each one toward your finished house, and weight the ones that needed the least adjusting. This post walks through how to estimate ARV that way, with one worked example carried from comps to stress test.

Why ARV drives every rehab-based deal

Every rehab strategy works backward from the finished value.

• Flips. Your maximum offer is ARV minus rehab, holding costs, selling costs and profit. The common shortcut is covered in the 70% rule, which is a rule of thumb that multiplies ARV by 0.70 and subtracts repairs.
• BRRRR. The refinance lender sizes the new loan as a percentage of appraised value. If the appraisal is ARV, the loan is ARV times the lender's maximum loan to value. That loan amount decides how much of your capital comes back.
• Hard money. Many rehab lenders cap their loan at a percentage of ARV, so the number also sets how much cash you need on day one.

Because ARV sits at the top of each formula, its error flows straight through. A $10,000 error in the rehab budget costs you $10,000. A $10,000 error in ARV costs a flipper the full $10,000 in sale price, and costs a BRRRR investor $7,500 in loan proceeds at 75% loan to value. Both errors hurt, but rehab errors show up gradually as invoices. ARV errors show up once, at the end, when the money is already spent.

So aim for the number a skeptical appraiser or buyer's agent would reach using the same sales. The highest figure you can argue for is worth nothing if nobody else gets there.

Pulling comps like an appraiser: the six filters that matter

Start with sold listings on the major listing portals, filtered to sold status and mapped. Then confirm each candidate in county assessor and recorder records, which give you the recorded sale price, sale date, living area, year built and whether the sale was between related parties. Apply these six filters in order and stop widening as soon as you have three to five sales.

1. Location. Same subdivision or neighborhood first. Do not cross a major road, a school boundary, a rail line or a jump in lot size. A house half a mile away on the other side of a boundary is a worse comp than one a mile away on the same side.
2. Recency. Sold in the last three to six months. In a market where prices are moving quickly, tighten to 90 days. If you must go back a year, note which direction prices have moved since.
3. Size. Living area within 10% to 20% of the subject. The closer the better, because size adjustments are the least reliable ones you will make.
4. Type and layout. Ranch against ranch, two story against two story. Match bedroom and bathroom count where you can. A three bedroom and a five bedroom attract different buyers even at similar square footage.
5. Age and construction. Similar decade, similar build. A renovated 1950s house does not comp against a ten year old house, however new the kitchen is.
6. Condition. Renovated to the level you plan to deliver. Read the listing photos of every comp. Your finished house competes with other finished houses, so an original-condition sale tells you about your purchase price and nothing about your ARV.

Two further checks apply to every comp. It must be a closed sale, and it must be arm's length. Drop sales between family members, foreclosure deeds, and off-market sales to investors at wholesale prices.

If you cannot find three sales that pass all six filters, that is information. Thin comps mean a wide value range, and a wide value range means you need a bigger margin in the offer.

Adjusting comps: what a bathroom, bedroom, or garage is worth

No comp matches your house exactly, so each sale price gets adjusted toward the subject. The direction rule is simple. If the comp is better than your house, subtract. If the comp is worse, add. You are answering one question: what would this comp have sold for if it had been your finished house?

There is no universal price list for features. A garage is worth more where winters are hard and street parking is scarce than where every house has a carport. The way to find the local figure is a paired sale: two recent sales in the same neighborhood that are close to identical except for one feature. The price gap between them is the market's value for that feature.

Some method notes before the example:

• Living area. Do not use the average price per square foot. Land, kitchen and mechanical systems do not scale with size, so each extra square foot is worth well below the average. Derive the marginal figure from two similar sales of different sizes, and expect it to land at a fraction of the average.
• Bathrooms. Going from one bath to two matters more than going from two to three. Value the specific step, using a pair that shows that step.
• Bedrooms. A bedroom carved from existing living area adds less than one that comes with added square footage, because you already adjusted for the area. Avoid counting the same space twice.
• Garage, basement, lot. Pair them locally or skip comps that differ on them.

Worked example: a three bedroom renovation

This is an example with invented figures. The subject will be a 1,450 square foot, three bedroom, two bath ranch with a one car garage, fully renovated. Paired sales in this example neighborhood gave these adjustment values: $80 per square foot of living area, $12,000 for a one car garage, $5,000 for a half bath, $10,000 for a second full bath, and $10,000 for the gap between a partial update and a full renovation.

The four adjusted values run from $305,000 to $312,000 and average $308,500. Comp 1 needed only $4,000 of adjustment, so it carries the most weight. Comp 4 needed $20,000, about 7% of its price, so it carries the least. A reasonable ARV here is $308,000, and a cautious underwriter would run the deal at $305,000, the bottom of the adjusted range.

Two rules of thumb for judging your own grid. First, if total adjustments on a comp pass 10% to 15% of its sale price, it is a weak comp and should be replaced if possible. Second, the adjusted values should be tighter than the raw prices. Here the raw prices span $29,000 and the adjusted values span $7,000. If adjusting makes the spread wider, the adjustment values are wrong.

The three comp mistakes that inflate ARV

Using list prices and pendings

Active listings are what sellers hope for. Pending sales have an unknown price. Only closed sales are evidence. Listings are still useful as a ceiling: if three renovated houses near yours are sitting unsold at $315,000, your ARV is not $325,000. Also check whether a comp's price included seller concessions. A $312,000 sale with $9,000 paid toward the buyer's closing costs is a $303,000 sale.

Crossing a boundary to find a better number

When the nearby sales disappoint, the temptation is to widen the map until a higher sale appears. The appraiser will not follow you across the arterial road or into the better school zone, and neither will buyers. If the best sale within your boundaries is $312,000, a $340,000 sale six blocks away in a different neighborhood is not part of your evidence.

Multiplying average price per square foot

Taking a neighborhood average of, say, $210 per square foot and multiplying by your square footage overstates value for larger houses and understates it for smaller ones. It also ignores the neighborhood ceiling. Every area has a price that buyers will not exceed regardless of finish level, because at that price they can buy in the next neighborhood up. If your ARV would be the highest sale the street has ever recorded, treat it as unproven.

Pressure-testing your number before you commit

An estimate becomes useful once you have tried to break it.

1. Get a second opinion from someone who sells there. Ask a local agent for a comparative market analysis on the finished house, and ask what they would list it at and what they expect it to close at. Those are different numbers.
2. Check how the comps sold. Short days on market and sales at or above list support the top of your range. Long market times and price cuts point to the bottom.
3. Look at what you will be competing with. Count the renovated listings that will likely still be active when yours is done.
4. Run the deal at lower values. Test ARV minus 5% and minus 10%, and see whether the deal survives.

Continuing the example: purchase at $170,000, rehab of $45,000 and $12,000 of closing and holding costs bring the all-in cost to $227,000. The 70% rule of thumb gives a maximum offer of $308,000 times 0.70, which is $215,600, minus $45,000 of rehab, or $170,600. The purchase price passes. Now the refinance at 75% loan to value, ignoring refinance closing costs:

The deal returns all capital only at the full estimate. At a 10% miss, $19,100 stays in the house. That is survivable if the rental cash flow still works with the smaller loan, and the point of the test is to know that before closing.

What to do when the appraisal still comes in low

Sometimes you do the work and the appraiser still lands below you. Appraisers work under time pressure, may not know the interior quality of the comps, and lean conservative when recent sales are thin. You have options, and they are best handled in order.

First, read the report and check the facts: square footage, bedroom and bath count, garage, condition rating, and which comps were used. Factual errors are the easiest thing to get corrected. Second, if better comps exist that pass the six filters, submit them through the lender as a reconsideration of value, with your adjustment grid attached. Keep it factual and short. Third, consider whether a different lender, a different loan product, or a few more months of seasoning changes the outcome. Fourth, accept the lower loan and leave more cash in the deal if the returns still work.

The full recovery plan, including how to decide between those paths, is in our post on what to do when a BRRRR appraisal comes in low.

Your next steps for the deal in front of you:

1. Pull sold listings inside your neighborhood boundaries and confirm each in county records.
2. Build the adjustment grid using paired sales from the same area, and weight the comps with the smallest adjustments.
3. Set your underwriting ARV at the low end of the adjusted range.
4. Enter that ARV, your rehab budget and refinance terms into the BRRRR mode of the single-family calculator. It shows whether the refinance returns your capital and what the rental cash flow looks like on the new loan, and you can rerun it at minus 5% and minus 10% in a minute.

If the deal only works at the top of your comp range, the comps are telling you the price is too high.