Understanding ARV in Real Estate

ARV is the abbreviation for after repair value. It is a term that describes the property’s estimated market value after particular renovations and repairs and is an imperative factor that plays an important role for real estate investors. It helps them determine the valuation of the property so they can get estimates for their ROI (return on investment) and maximize their profit. 

A firm grip over ARV helps investors and buyers foresee how much money they should invest in repairs/renovations to get the best ROI. For instance, if a house goes on the market with a fair price and the neighboring houses in the area have a lower price, the ARV can help determine the chances of a profitable investment.

See Also: Understand Pending and Under Contract Property 

How ARV Works

Now that you know what ARV is let’s discuss how the idea is implemented in real estate. House flippers and cash buyers most commonly use ARV. House flipping is a short-term strategy where an investor buys the property that requires modification. The investor would then make the repairs to sell the property at a profit. To ensure the profit is large enough to put in money, the investor looks at the estimated ARV and the consequent renovation and repair costs.

See Also: Should You Renovate Your Property Before Selling or Sell it As-is?

Understanding ARV in Real Estate​

ARV is also an essential factor for lenders. Lenders offer renovations to buyers who buy distressed properties. ARV helps determine the house’s value and how the renovations would work. Lenders provide the maximum amount for a loan for ARV. However, the final loan amount is assessed through a lender-approved appraiser that evaluates the ARV.

The 70 Percent Rule

ARV functions on the 70 percent rule, demonstrating if the property is worth buying at the current price with more than 70 percent of the ARV value, apart from the renovation costs. 

You can calculate this using the following formula:

ARV x 0.7 – estimated repair cost = Maximum Offer Price

This equation gives us the maximum bidding price. 

Let’s take an example here. Suppose there is an available property you’re interested in. The estimated ARV value is $500,000 after renovations, and the repairs are around $50,000. So that leaves a deducted sum of $450,000 after the house sells. Applying the formula here, investors would know not to buy a house for more than $315,000.

Calculating ARV

An appraiser can help you determine the ARV through comparative market analysis, also known as the CMA. This is a professional calculation. On the other hand, you can do rough calculations on your own too. If you plan on doing it by yourself, there is no need to get into the intricacies; you may simply use an ARV calculator. Follow the steps here to calculate a rough amount.

Calculating ARV

  1. Compare your property to other similar properties. The most efficient way is to compare your property with others to look at the ARV. Look at listings and talk to real estate professionals who know the market. Take notice of the properties that have features similar to yours. The area does not matter that much in this regard.
  2. Calculate the price per square foot. After you list down the properties, rank them by their square footage. For instance, if a 2,000 sq. ft comp sold for $200,000, the price per square foot would be $100. You can then average the results to determine an estimated value.
  3. Determine the ARV. The last step is to evaluate the ARV through price per square foot. Employ the ARV formula to make out the after-repair value of the property. This calculation only gives you an estimate, and the prices are prone to change depending on the market, local trends, neighboring areas, and other factors.

Looking to Sell Your House?

ARV can be daunting if you don’t know how it works. Even with rough calculations, you can never predict how the market will change. Thus, cash buyers should be your go-to if you’re looking to sell your property quickly and without any potential problems.

At Top Cash Offer In USA, we provide the best services. Our offered prices are market competitive and give you a good value for your money. The biggest benefit is that you don’t need to get into the ARV notion or work with realtors to sell your property. We buy your property as-is without any obligations from your side, so you have complete control. Get in touch with us today for a stunning offer and quickly move out of your house within days.