ARV Formula Explained (with Real Comp Adjustments)
Hootan NikbakhtWhy the ARV Formula Matters
Mastering the ARV formula is essential for any serious real estate investor. After Repair Value (ARV) calculations determine your maximum offer, profit potential, and ultimately, whether a deal makes financial sense.
This comprehensive guide breaks down the ARV formula step-by-step, shows you how to make proper adjustments using real comparable sales, and provides a free worksheet to streamline your calculations. Whether you're analyzing your first flip or refining your analysis process, this guide will help you calculate ARV like a professional.
By the end of this guide, you'll understand how to calculate ARV accurately, make proper adjustments for property differences, and use your ARV to determine your maximum allowable offer using the 70% rule.
Table of Contents
What ARV Really Is (and Isn't)
ARV Definition
After Repair Value (ARV) is the estimated market value of a property after all planned renovations and repairs are completed, based on comparable sales of similar properties in similar condition.
ARV vs Market Value vs As-Is Value
ARV (After Repair Value)
Estimated value after renovations are complete. This is what your property will be worth when you're ready to sell.
Market Value
Current value of similar properties in similar condition. This is what comparable properties are selling for right now.
As-Is Value
Current value of the property in its present condition. This is what the property is worth before any renovations.
Key Point
ARV is NOT the current market value or what you paid for the property. It's the future value after your improvements are complete.
The ARV Formula
Basic ARV Formula
The ARV formula is deceptively simple: it's the expected market value of your property after renovations are complete, derived from comparable sales.
Step-by-Step ARV Calculation Process
- Identify Comparable Sales: Find 3-5 recently sold properties similar to your target property after renovations
- Calculate Price per Square Foot: Divide each comp's sale price by its square footage
- Make Adjustments: Adjust for differences in condition, features, and location
- Determine Average Price per SF: Calculate the adjusted average price per square foot
- Apply to Subject Property: Multiply by your property's square footage
- Quality Check: Compare with median values and market trends
Pro Tip
Always use multiple comps and make adjustments for differences. A single comp is never enough for an accurate ARV calculation.
Choosing the Right Comps
The quality of your ARV calculation depends entirely on the quality of your comparable sales. Here's how to select the best comps for your analysis.
Comp Selection Criteria
Distance
Within 0.5 miles of subject property, preferably in the same neighborhood or subdivision
Recency
Sold within the last 6 months, ideally within 3 months for fast-moving markets
Bedrooms/Bathrooms
Same number of beds/baths as your renovated property will have
Square Footage
Within 10-15% of your property's square footage after renovations
Lot Size
Similar lot size and configuration (corner lot, cul-de-sac, etc.)
Property Type
Same property type (single-family, townhouse, condo) and style
Red Flags to Avoid
- • Comps sold under duress (foreclosure, short sale, estate sale)
- • Comps with significantly different condition than your renovated property
- • Comps from different school districts or significantly different neighborhoods
- • Comps with major structural differences (basement vs no basement, garage vs no garage)
Adjustment Methods
Once you've selected your comps, you need to make adjustments for differences between the comps and your subject property. Here are the most common adjustment methods.
Price-per-Square-Foot Baseline
Start by calculating the price per square foot for each comp, then make adjustments for specific differences.
Common Adjustment Factors
Condition Adjustments
- • Excellent: +5-10%
- • Good: +0-5%
- • Fair: -5-10%
- • Poor: -10-20%
Feature Adjustments
- • Garage: +$10,000-25,000
- • Pool: +$15,000-35,000
- • Updated kitchen: +$10,000-20,000
- • Updated bathrooms: +$5,000-15,000
Gross vs Net Adjustments
Gross Adjustments
Add up all individual adjustments to get a total adjustment amount, then apply to the comp's price per square foot.
Net Adjustments
Apply each adjustment individually to arrive at an adjusted price per square foot for each comp.
Pro Tip
Keep adjustments under 15% of the comp's value. If you need larger adjustments, find better comps.
Worked Example: From Comps to ARV
Let's walk through a real example using actual numbers to show how the ARV formula works in practice.
Subject Property
1,500 square feet, 3 bedrooms, 2 bathrooms - Post-rehab condition expected to be similar to comps
Comparable Sales Analysis
| Comp | SF | Sold Price | $/SF |
|---|---|---|---|
| C1 | 1,480 | $420,000 | $283.78 |
| C2 | 1,600 | $432,000 | $270.00 |
| C3 | 1,520 | $410,000 | $269.74 |
ARV Calculation
Step-by-Step Calculation
- Average $/SF: ($283.78 + $270.00 + $269.74) ÷ 3 = $274.51
- ARV (Average Method): 1,500 × $274.51 = $411,760 (~$412k)
- Sanity Check (Median $/SF = $270): 1,500 × $270 = $405,000
- MAO (70% Rule minus $55k repairs): 0.70 × $411,760 - $55,000 ≈ $233k
Important Note
The 70% rule is a heuristic—tune for your market and carrying/closing costs. Some markets may use 65% or 75% depending on conditions.
Quality Check: Median vs Weighted Average
Always perform quality checks on your ARV calculation to ensure accuracy and identify potential issues.
Median vs Average Comparison
Average Method
Add all values and divide by the number of comps. More sensitive to outliers but gives equal weight to all comps.
Result: $274.51/SF
Median Method
Middle value when comps are arranged in order. Less sensitive to outliers and often more reliable.
Result: $270.00/SF
Quality Check Questions
- • Are your comps truly comparable to your subject property?
- • Is the price range of your comps reasonable and consistent?
- • Do your adjustments make sense and are they supported by market data?
- • Is your final ARV within the range of recent sales in the area?
- • Does your ARV align with current market trends?
Red Flags
- • Large differences between average and median values
- • ARV significantly higher or lower than recent sales
- • Adjustments totaling more than 15% of comp values
- • Comps from different market segments or conditions
From ARV to Offer (MAO & the 70% Rule)
Once you have your ARV, you can determine your maximum allowable offer (MAO) using the 70% rule and other factors.
70% Rule Formula
This rule ensures you have enough margin to cover repairs, carrying costs, and profit while accounting for market fluctuations.
Example Calculation
Using Our Previous Example
- ARV: $411,760
- 70% of ARV: $411,760 × 0.70 = $288,232
- Repair Costs: $55,000
- MAO: $288,232 - $55,000 = $233,232
Factors That Affect the 70% Rule
Market Conditions
Hot markets might use 75%, slow markets might use 65%
Carrying Costs
Higher carrying costs require lower percentages
Experience Level
Beginners should use lower percentages for safety
Property Type
Different property types may have different rules
Pro Tip
Always factor in closing costs, holding costs, and a profit margin when determining your final offer price.
Frequently Asked Questions
What is ARV in real estate?
ARV stands for After Repair Value. It's the estimated market value of a property after all planned renovations and repairs are completed, based on comparable sales of similar properties in similar condition.
How do you calculate ARV from comps?
To calculate ARV from comps: 1) Find 3-5 comparable sales, 2) Calculate price per square foot for each, 3) Make adjustments for differences, 4) Determine average adjusted price per SF, 5) Multiply by your property's square footage.
Does ARV include repair costs?
No, ARV does not include repair costs. ARV is the final value after repairs are complete. Repair costs are subtracted from the 70% rule calculation to determine your maximum allowable offer.
How accurate is ARV without MLS access?
ARV accuracy without MLS access depends on the quality of public data available. While not as accurate as MLS data, you can still get reasonable estimates using public records, Zillow, Redfin, and other real estate websites.
What if there are no close comps?
If there are no close comps, expand your search radius, look at older sales, or consider properties in similar neighborhoods. You may need to make larger adjustments, but be conservative in your estimates.
ARV for condos/townhomes—what changes?
For condos and townhomes, focus on comps within the same building or complex when possible. Consider HOA fees, amenities, and building condition in your adjustments. The basic ARV formula remains the same.
Download: ARV Worksheet
Free ARV Calculation Worksheet
Streamline your ARV calculations with our professional worksheet. This Excel/Google Sheets template includes:
- • Comp comparison table with automatic calculations
- • Adjustment factors for common property differences
- • Built-in formulas for ARV and MAO calculations
- • Quality check indicators
- • Professional formatting for client presentations
Available in Excel and Google Sheets formats
Bonus: Try Our ARV Calculator
For even faster analysis, try our free ARV calculator that automates the entire process and provides instant results.
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