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How to Calculate After-Repair Value (ARV) and Find Accurate Comps!

How to Calculate After-Repair Value (ARV) and Find Accurate Comps!

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You probably haven’t heard this exact saying: “A fool knows the price of everything and the value of nothing.” But it may sound familiar. That’s because it rings true, especially for those of us in real estate investing.

In this post, I’m going to give you a roadmap for figuring out a property’s value.  Because if you don’t have this skill, nothing else in real estate matters.  This is something that will be paramount to your career as an investor. The ability to determine a property’s value quickly and effectively is nothing less than essential to any investor’s ability to even turn a profit.

I often see people speculating on the value of homes, and it’s just not a good path to go down – trust me. You want to make your decisions based on rock-solid data and (when available) expert input…

So let’s get going.  Here’s the process flow of figuring out what to pay for something:

  1. Find the “After Repair Comps” – What will the property be worth AFTER it’s built or renovated?
  2. Analyze the Comps and Determine the ARV
  3. Estimate Repairs/Construction Costs and other expenses
  4. Apply the Maximum Allowable Offer formula to determine the max offer you can make

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And let’s be clear, when we talk “Value”, there are really 2 #s that matter: 

  • Current as-is Value
  • After-Repair Value (ARV)

If we limit our conversation to looking at houses that need work, to either wholesale to other investors or to buy yourself and renovate, then my recommendation is to ALWAYS figure out the ARV first, then work your way backwards to the As-Is Value to determine what to pay for a property.

Read that part again – it’s important!

Knowing Accurate After Repair Value (ARV) is extremely important – you really have to nail this down! If you underestimate a property’s ARV, someone could easily outbid you and snatch up a house you were eyeing… or you could end up paying way too much for a property and losing your shirt on the deal. These are some pretty big risks and highlight just how critical it is that you become adept at effectively getting to an accurate ARV.

“As-IS” is what you pay now (your MAX offer) and ARV is what you can resell the property for when you’re done rehabbing or building it.   Makes sense?  Ok, let’s keep going

There are essentially 3 ways to determine a property’s value:

  • Do it yourself using some online resources and some math
  • Use a realtor – have them supply the comps and possibly have them generate a CMA (Comparable Market Analysis)
  • Use an appraiser

If you are out there looking at 20 potential deals a day to buy, you’re not going to consistently be able to use options 2 or 3 (realtors won’t generate 20 CMAs a day for you no matter how good they are and appraisers are expensive and take time, while you have to make an offer quick!).  So this post will focus on #1 – determining value yourself.  This is a skill that, in my opinion, you absolutely must learn!

Now, if you’re rehabbing a house and need to determine what price to list it at, then that’s a different story.  Find a great realtor to help you, put together a CMA and come up with the optimal offering price!

But if you’re out there making 5-10 offers a week, then you need to move quickly and be able to do this yourself, on the go.  So let’s talk about how to do that.

Determining the After-Repair Value 

Step 1:  Your starting point should be comparable sales.   Find actual sales data within the last 6 months of similar houses to your subject property.  The properties that sold should be similar to yours in:

  • Size (square feet)
  • Bedrooms, baths
  • Stories
  • Location – should be as close as possible. Same block, same neighborhood, etc.
  • Note:  the condition should be similar to what your property will look like when you’re finished rehabbing/building it!  This is important.  If you’re buying a property to renovate, comps should be of already renovations properties with similar finishes to what you plan to put in

The comparable properties don’t have to be exactly like yours.  You can make adjustments to your value based on differences in sq ft, bedrooms, baths, basement, etc.   But the properties should be as similar as possible.

Sources for Finding Comps

MLS:  Your single best source of comps will be from the MLS.  There is no more complete source of data than the MLS, hands down, in most markets.

Non-MLS Online Resources:

  1. Zillow
    Zillow’s data and comps have gotten much better over the last few years. In my market and many other markets, their data is almost or is as complete as the MLS.  Unless you’re in a non-disclosure state, Zillow can now be your go-to comps provider AND Rehab Valuator Premium now pulls comps automatically from Zillow and populates them in the software for you:

 


  1. Trulia
    Same pros and cons as Zillow. If you’re in a “disclosure state” you should be able to get good comps data on Trulia
  2. Other Free Online Resources
    These include:

Now, you can also find some affordable paid online resources that may aid in your quest to determine property value. These are a bit trustier (yes, it’s word, well, kind of) than the free resources, and are less expensive than paying an appraiser:

Ultimately, if you’re an agent then you should be relying on MLS for most complete data and if you’re not an agent, then find a good one to work with some that they can supply you with reliable comps, especially if you’re in a “non-disclosure” state (check out link above).

Once you have accurate comps, I recommend creating a rough “$ per sq ft” ARV estimation.  You can take an average of the relevant comparable sales properties of the $ per sq ft sales prices.  You can then add or subtract if your subject property has less or more of something:  bedrooms, baths, finishes, amenities, etc.  Again, remember, this is as much of an art as it is a science.

Ok, you have comps and have a good idea about the ARV, now on to Step 2:

You know what the property will be worth once the renovations are complete, you have to estimate what it will take to get there. I.E. what the repairs will cost.

There is no substitute here for experience.  Read this article I wrote recently for an indepth look at this topic

Now you know the ARV, you have an idea about Repairs, so let’s figure out what to pay:

So, you know the ARV.  You know the repairs.  Most of the work is done.  From here it’s easy.  Whether you’re going to wholesale this deal or buy it yourself, make some guesses about closing costs, assign your wholesale fee (if applicable) and use the Max Offer Calculator to tell you what the Maximum Allowable Offer should be.  Check out this video:


 

I tried to keep this short and sweet, so if there’s anything I left out, comment below and I’ll answer your questions.  I’m also going to post a few additional resources for you below to check out! (If don’t want to do the work yourself, you are also welcome to try our flipping software, which does the calculating for you).

Remember:   “An investment in knowledge pays the best interest.”
~ Benjamin Franklin

Talk again soon,

~Daniil Kleyman

Comments, Questions?

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Comments (87 comments so far)

  1. Good job, Daniil! It is most important to get all the data possible prior to jumping into a project Using professionals is most important. As far as the cost to cure damages, I might recommend a program the FHA uses to estimate repairs on their REOs –“RepairBASE”, by BlueBook. it is specific to a certain ZIP code and gives a much closer approximation than one that uses “regional” data, such as the free program “Building-cost.net”, RepairBASE can be accessed on-line at a reasonable cost. I believe they require users to purchase a bundle of 10., but once you have them you can parcel them out to your agent, conrtactors, etc.There’s even an example of someone using it on YouTube!

  2. Daniil….. Your latest email, above, deserves to be ENSHRINED as the best guidance any ‘newbie’ R-E Investor may encounter. GREAT JOB, Kimo Sabe! (BTW, ditto your RehabValuator software which is an essential tool for both learning, calculating and presenting to seasoned professionals.)


    • Daniil

      Thanks, Kahl! Always great to hear from you and appreciate the compliments!


  3. JOYCE MYERS

    Daniil
    This is very valuable and helpful information. Easy to learn.
    I work Kansas and Missouri but this is info that will work very
    well for me..
    Thanks very much


    • Daniil

      Glad to hear it, Joyce! Thank you


  4. Ken Earnhardt

    One expense that can really upset a deal is insurance during the rehab period. You can take the risk and not cover the property but if you are in an area that has a lot of tornadoes or subject to hurricanes, depending on the time of year it may not be prudent to not have coverage. These policies are called builders risk and typically are for a 6 month period minimum. They are also very expensive….therefore don’t forget to include that in your COR – Cost of Rehab!


    • Daniil

      Good point! Always include insurance in your holding costs calculation!


  5. Sheila Mitchell

    Good Job Danil….Thank you for the video! I would like to have an example regarding the $ per sq ft in adjusting or adding or subtracting something in the comps and subject property. Thank you.


    • Daniil

      Thanks, Sheila. I’ll work on adding something about this!


  6. William Ross

    Just wanted to make sure you canceled my 14 day free use of your product…
    Thank you Bill Ross
    727-412-3744


    • Daniil

      You have the free version. There’s nothing to cancel. It’s not a 14-day trial – it’s free permanently 🙂 If you want the 14-day trial of the Premium, it’s here: http://www.RehabValuator.com/try-it


  7. Mr. Beary Bowles

    Thank you for the information and I’m striving to learn everything bit of it. My issue is that I’m in the st. Louis city market and most my comps sold are already low. Like sound for 22 to 40 thousand. My issue is that use I can make a offer which will mostly lead to a very low offer but it sold it would be 20 to 30 thousand sold to a buy. Should I simple avoid troubled neighborhoods or just choose a different market?


    • JacobC

      Hi Mr. Bowles,

      I am having a little trouble understanding your comment. My guess is maybe you’re using speech to text or something. In regards to troubled neighborhoods there can be great opportunity there for investment but it is very dependent on the neighborhood. In the end, if the numbers make sense, you can get the profit you want out of the deal, and you’re confident you can accomplish your exit strategy I say go for it.


  8. Dale Willie

    Daniil,

    I have a young Investor that wants to start doing deals with me (I will be wholesaling to him), I believe he needs this information. Can we work a deal, where I get a little commission if he purchases from you?

    Thanks,

    Dale


    • Korrie McKeen

      Hi Dale,

      Absolutely! What you will need to do is sign up to be an Affiliate with us. You can make commissions this way by sharing your unique Affiliate link once you sign up. Thanks!


  9. Valerie Coleman

    This was very helpful and detailed all investor need this information. Thank you so much taking time out of your busy scheduled to teach all of us this.


  10. Astrid van Boom

    Hi Daniil

    I have tried FindCompsNow several time, and find it the worst website looking for comps. After registration, you should be able to pull comps, but after logging in, it keeps on declining your access. On facebook there is several people that has and still is voicing their dissatisfaction with this website. When you enter the address in the search bar, it recognizes it, but will bring up $0 as estimate. Is this an indication they don’t have the property on their database? Surely not for properties that has been build in the 60’s or 70’s. Been contacting their support team and even trying to call them, but no response at all.

    I would therefore not recommend this site as a reliable site. If it does. on the odd occasion, give you an estimate on a property, it is most of the time the same as on Zillow. Only difference is,that it gives you options on the Offer price based on 60%,65%,70%,etc.) you use. Which can be great if the site is more user friendly.

    This is where I give Rehab Valuator 100% for being such a user friendly site.!!!!!!

  11. Your remark: “this is as much of an art as it is a science” is apt. IF there are enough comps, I would refine the calculation by omitting the dearest and cheapest in the sample. Clever to compare to properties of a similar age, so exclude very new and very old members. Ensure comps were built within the same decade. As a solid reference point, I also look at county official values, though the only figure always available is the assessed taxable value, as counties’ websites are all a bit different. Anyway, county is a respectable reference because their appraisals take into account the current known condition.
    I still do not know how rehab can be reliably estimated without either a visit or a paid inspection..When a seller believes he can get away with it, he will tell you that repairs will only be ‘cosmetic’ and all appliances are working fine!. But when you don’t know its essential repairs, it is prudent to cut your offer price, though that can kill your opportunity, as you note.

  12. The video doesn’t play. Is there a time frame that it doesn’t? This is the meat and potatoes.


    • JacobC

      Hi Brenda,

      No. The video is working all the time and I just double checked and it’s working great on this side. I’ll email you some suggestions that might help.


  13. Lloyd

    Thanks, Daniil I always wonder how that was done. I thank you for the information you have provided for us to use. If I could only get a copy step by step I strongly appreciated it. Once again Daniil I Thank You


  14. Rudolph Palombi

    Really great stuff..thanks


  15. Sheila Mitchell

    VERY INFORMATIVE!!


  16. Antionette

    Very helpful information. I have not setup a website yet.


  17. Donald

    Amazing software. Yes of course i need this.

  18. Daniil you crazy man rock star like John Elton said your a rocket man dam your a pimp in this field wow man I still can’t figure out how you do it but after seeing your education I see why you give what you give sincerely yours JJ the kid.


  19. Jemila

    Great Points! I need a quick refresher since it’s been a few years since I invested. I almost thought about purchasing another 4 figure course until I read this. Got me back on my bike…at least to help me hit the ground. Great work! Will check out the calculator.


  20. huguens louis-pierre

    very helpful info


  21. Marvin

    Thanks so much Daniiil.. it was truly a blessings to find out about you. Thank you and I look forward to your your next post

  22. hi, thanks for the article. Very instructive, but unfortunately, I live and active Dominican Republic online resources so that you sent me can not be used here …. In any case very instructive material. If somehow you need a representative here. Call with confidence …


  23. Cory Newton

    I really enjoyed reading your post, it’s packed with a lot of useful information.
    I am definitely ready to take my first action in real estate investing in my first flip
    property. Thanks

  24. Am I missing something? In the video, why is the closing costs on the buy side $2k? We’re not buying it at $100k we’re buying it at the MAO so wouldn’t the buy-side closing costs be more like $1000 or less?


    • Daniil

      Ben – closing costs really vary by transaction, whether it’s cash or loans, etc. Everything in my videos is just an example and not a guideline.


  25. Jai

    Danii You explained this so perfect. I have asked these so call gurus to help me make offers. No one have i gotten a phone back.

    Lets Work

    Jai Thompson


    • Daniil

      That’s what I like to hear!


  26. Val

    Hi Daniil,

    Extremely helpful article, thanks. I have been using Redfin for sold comps, so I am interested that you think Zillow is better. Why?


  27. DANNA SEALE

    Since I am in Texas, does this mean that Zillow is the only one mentioned that will not be disclosed?
    I can still use the Rehab Valuator though, can’t I?


    • Daniil

      Hi Danna – that’s correct! Comps won’t work for Texas deals likely, but everything else in Rehab Valuator will work just fine!


  28. Grover Keeney

    Very good article. I appreciate the lists for companies other than Zillow.


  29. Bertrand Hall

    Rehab evaluator is a great tool very helpful and makes the process clean and easy to manage.


    • Daniil

      Thanks, Bertrand!


  30. Pierre A Louis

    Hi Daniil,

    I found ten properties yesterday that I can consider as wholesale deal. I got the physical address, but how can I find the property’s owner? Could you please help me in that particular case. Thank you in advance for your support.

    Best regards,

    Pierre


    • Daniil

      Pierre: There are a number of ways you can track down these owners. First thing to do is access your county tax records and find the mailing address for the owner. If these properties are vacant or investor properties, mailing address will generally be different than the property itself and you should have decent luck sending a letter or a postcard to that address.

      Next, you can try to find the owners on social media. Many people don’t think about this, but it works! Send them a message on Facebook or LinkedIn if you can find them. Or maybe you can google their phone # and call them.

      Lastly if none of this works, you can use skiptracing services to locate the owners. And last last last thing to try: take a “For Sale” sign and stick it in their front yard with your phone number. See how quickly the owner calls you to find out what the heck is going on! 🙂

  31. great job! thanks for breaking down for us. I still have questions but in time like anything new will learn more. You do a really good job breaking it down for people and you software does all the hard lifting for us!! thank you very much.
    Cory


    • JacobC

      Hi Cory,

      You’re very welcome! We like to try and make things easy to understand. Information is power and understanding how to implement what you learn is the key to success. Rehab Valuator is designed to help do just that. Execute.


  32. Robert Evans

    This was a very informative tutorial. Why didn’t the videos play?


    • JacobC

      Hi Mr. Evans,

      I’m glad you’re enjoying the content. In regards to your video issue I emailed you some things to try. The first being a simple reboot. The second is trying a different web browser. Look through those tips from my message. If you continue to have trouble let us know.

      Thanks!

  33. Hi I’m Michael I just joined up I’m honor to be apart of your team of students I’m a novice investor and I’m finding this tool to be very insightful I look forward to finding all the necessary tools in order to be successful at wholesaling and flipping as well as purchasing and holding ! One thing I don’t see and would like to see on your sight in purchase agreement contracts. Also I’ve ran into a few would be private money lender on this site who are very very questionable, how can we find reliable source of funding ?

    thank you I look forward to seeing you on the other side of success !
    Sincerely
    Michael Sims


    • JacobC

      Hi Michael,

      Purchase contracts are available to premium members are part of the bonuses package. Even then we still recommend you have an attorney look them over to make sure you’re complying with local, state, and federal regulations. In regards to lenders we don’t get involved in that aspect too much. We do have a Get Funded button inside the program for premium users. That allows you to match your deal with a list of 150+ hard money lenders to see if any are a good fit.


  34. Marian

    The information was very helpful.

    Besides being unrealistic to expect realtor to do multiple CMAs every week. I’ve yet to find realtor that can do an “after repair” CMA for a rehab property or sold as-is. They say the CMA is generated from the subject property which if its a rehab, the system will only generates like kind.

    Has that been your experience?


    • Daniil

      Marian – it depends on the CMA methodology, but yes, that makes sense. To me what’s more relevant is always the ARV. Not the current as-is. That is always too hard to pindown. ARV is actually easier!


  35. Juan a Remon

    Thank You for Your inside about calculating ARV it was very helpful. specially, how the rehab-valuator software bring into the software comps from Zillow. Great. Best regards, Juan.


  36. Juan a Remon

    How can I get a link to the flipping software, and how much it cost? Thanks Juan.
    Note: Your articles are very helpful and clear….


    • JacobC

      Hi Juan,

      You already have our Rehab Valuator program. If you need help accessing it please email us at support@rehabvaluator.com


  37. Jay

    Daniil great information straight to the point..
    The system is the key….


    • Daniil

      Thanks, Jay!


  38. Marvin

    You are the BEST.


  39. Seyed Javaheri

    I am assuming the calculator is based on cash money not provided by a hard money.


    • JacobC

      Hi Seyed,

      Rehab Valuator will evaluate all cash deals or deals with financing (including hard money lenders).

      Thanks!

  40. Excellent tools to calculate ARV, cap rate max offer. The instructional tutorials are really good to learn to operate RehabValuator while learning real estate at the same time. This is great.
    Thank you

  41. I appreciate your tutorials and look forward to any and all future improvements to an already useful tool. Great! I look forward to using this tool for my presentations to buyers.


  42. Roland

    Looks interesting and helpful……Thanks


    • Daniil

      I certainly hope so! 🙂


  43. Juan A Remon

    I would like to see a case scenery on how to calculate $/ square feet from comps to arrive to ARV?
    Thank’s Juan.


    • JacobC

      Hi Juan,

      All you need to do is take the sales price and divide that by the number of square feet. That will give you the price per square foot per comp. Do that for each one. So for a $100,000 property that is 1,000 sq. ft. you would take 100,000 / 1,000 = 100. Then you add up those per sq. ft. costs and divide by the number of comps you have. That will give you the average per sq. ft. cost.

      So our first comp is 100/sq. ft. (as calculated above). Lets say we also have a comp that is $200,000 and 1,000 sq. ft. so it ends up being $200/sq. ft.(200,000 / 1,000 = 200) You would then add those together 100 + 200 = 300 and divide by 2 (the number of comps we had) to get the average which is $150/sq. ft. I hope that helps.


  44. Dave Syrus

    Daniil, I have an agent to work with me on making offers and talking to sellers/agents. If I decide to wholesale a property, doesn’t that eliminate any fee percentage my “buyer’s agent” would receive? Also, when wholesaling, I don’t want the seller (or his/her agent) to know that I am “assigning” the deal to someone else, correct? Do we have an assignment contract available to us here?

    Regards,
    Dave


    • Daniil

      Dave: 1) Don’t wholesale MLS-listed properties that you’re looking at with agents. I know some people do it, but in the eyes of most legit real estate investors, you’re just crowding the marketplace when you do that. The whole point of wholesaling is to find OFF-market deals. That’s how you bring value to the marketplace. 2) It’s always best to disclose your intentions to sellers. Even if you don’t say you’ll be assigning a contract, at least let them know it’s a possibility. Honesty is always the best policy and it avoids confusion and hurt feelings down the road. As part of your bonuses for Rehab Valuator Premium, you have a Purchase contract that allows assignment and Assignment of Contract that you can use.


  45. Jeffrey Lee

    How do I determine the equity of a potential flip, as it sits now?


  46. fred thomas

    information is short and sweet. goes right to the heart of any deal.


  47. Zaid Ansari

    I do not have buyer’s remorse. Your tools and information are real-deal quality. Thanks for delivering valuable content.


    • Daniil

      You’re welcome, Zaid and I appreciate your compliments and support!

  48. so far so good!!!! This is the part I’ve been missing…. I can flip, I can jump, I can hire I can paint I can rehab, hence the name Rekindled Spirits Restoration LLC, WHAT I can’t (I hate using that word, so lets change it to what it really is)…I’ve been fearful of approaching the investor side, rumors of lending sharks, that are just waiting for any violation that voids your contract and allows the ‘sharks’ to come in and retain the ownership of a job I’ve spent much time and money on…

    Just from what I’ve viewed, in the short time I’ve had the full program (I encourage anyone, and everyone, get away from the free version and take a leap of faith to the full version) THis baby comes fully loaded, with sensible easy to follow information…Daniil and James have gone to great lengths to simplify and energize those like me who are intimidated, and fearful of J.V.ing with the wrong lenders!


    • JacobC

      Hi Michael,

      You must be part of Bank Elimination Blueprint as well. That’s where James Ingersoll comes in if anyone is curious. We happy that you’re loving both programs and we hope that you’ll be a big part of your success in this business as you move forward with confidence. If you ever have any questions please let us know.


  49. Patrick Sarkissian

    Very important and valuable information, like it very much. Another item need to be added to the cost calculation is the financing cost if it is financed.

    Realtor


    • JacobC

      Hi Patrick,

      Good tip! Luckily, Rehab Valuator takes that into consideration when you go to do your analysis. It lets you enter in things like interest rate, points, profit split, etc.


  50. James Okhueleigbe

    Daniil, this is a good presentation on how to calculate ARV. I have always had problems trying to figure out how to calculate ARV and determine the maximum allowable offer. With your software this is easy to calculate. As for estimating the repair costs, how exact does one have to be in order to be accurate. Now that I am in the State of California and looking for properties in Georgia of Alabama. I am not in that area, how do I estimate the repair costs?


    • StefanieK

      James, There is no easy answer to this question. You should be as exact as you can be knowing that any cash buyer you find will be doing calculations on their end. We always recommend, if at all possible, to have someone look at the property in person. There are some things you just can’t estimate with percentages and photographs.

  51. You might consider me a wanna be investor. I am definitely a novice. I’ve been studying and I am so grateful for your free lessons. I am trying to get some cash investors to allow me to do a walk-through on a live ARV/MAO estimation. Watching video is good, better than reading about it but the walk-through is what I need. I live in central Los Angeles close to Hollywood.

    I do want to get the RehabValuator but my budget is shoestring type, for real. I hope I can get it before the price goes up. Please give me advance warning.

    I am really appreciative that you are being so helpful.


    • Daniil Kleyman

      No worries, Terri. Upgrade to Premium when you can afford to. In the meantime just keep using our free software, learning and implementing!


  52. jody ross

    Great video on how to calculate ARV and what your all in cost would be thanks for making this video ..


    • Daniil Kleyman

      Glad you got value out of it, Jody!


  53. Jim

    How do you figure your closing costs?


    • JacobC

      Hi Jim,

      You have closing costs to buy and closing costs to sell. Closing costs to buy I usually estimate anywhere from 1.5% to 2% depending on the price range of the property if I’m buying with cash. That covers general closing costs but doesn’t take into account any special circumstances like liens or back taxes. Closing costs to sell, when using realtors, you can usually estimate at 7%. That’s my opinion and what I usually use for my own estimates.

  54. Im a contractor with 30 years experience and have listed to alot of different scenarios on rehab budgets based on sow, and always thought it was to low.
    And by your explanations of the markets and your numbers are more accurate, to real world circumstances and evaluations.


    • JacobC

      Hi Dale,

      I’m glad the info is helping and that it aligns with your real world experiences.