After-Repair Value: Building an ARV a Lender Will Believe
ARV caps the size of your flip loan, so an optimistic number can cost you real money. Here's how to build an after-repair value a lender will believe.
Short answer
After-repair value is what a property should be worth once your planned work is finished, based on recent sales of comparable renovated homes. Lenders use it to cap the loan, often at a percentage of ARV. A credible ARV leans on the most similar recent sales, adjusted for real differences, rather than the single best sale in the neighborhood.
Key points
- ARV caps the size of most flip loans.
- Use the most similar recent sales, not the best one.
- Adjust for real differences like size, beds and baths.
What ARV is, and why lenders care
ARV is the value of the property after your scope of work is complete. On most fix-and-flip loans it sets the ceiling: the lender lends up to a set percentage of ARV, no matter what you paid. Inflate it, and the appraisal will cut your loan.
Choosing comparable sales
- Recent: sold within the last few months where possible.
- Close: same neighborhood, ideally a short distance away.
- Similar: comparable size, bed and bath count, lot and style.
- Renovated: finished to the level your scope will deliver.
Adjusting for differences
Adjust each sale toward your finished property: subtract for features it has that yours won't, and add for ones it lacks.
ARV worksheet: Three comparable sales, illustrative
| Sale price | Adjusted | |
|---|---|---|
| Comp 1: larger lot and garage | $425,000 | $415,000 |
| Comp 2: one fewer bathroom | $398,000 | $410,000 |
| Comp 3: added pool | $430,000 | $415,000 |
| ARV used | $410,000 |
The adjusted sales average about $413,000. Using $410,000 leaves a margin for the appraiser's judgment.
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Common ARV mistakes
- Anchoring on the single highest sale
- Comparing a mid-grade rehab to luxury finishes
- Ignoring days on market and price cuts
- Forgetting that the appraiser will choose their own comparables
For how ARV sizes the loan, see fix-and-flip financing.
Frequently asked questions
How do you calculate after-repair value?
Start with recent sales of renovated homes similar to yours, adjust each for differences like size, bedrooms and features, and settle on a value the adjusted sales support.
What percentage of ARV will a lender lend?
It varies by lender and experience. Many fix-and-flip programs cap the total loan somewhere around 65 to 75% of ARV.
Who decides the ARV on my loan?
The lender typically relies on an appraisal or valuation that estimates after-repair value from your scope of work and comparable sales.
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