How To Find Your Home’s After Repair Value

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ARV stands for “after repair value,” which is the estimated value of a property once it has been renovated. The estimate is a well-researched educated guess about how much a house is worth after renovations and repairs.

This crucial figure can help calculate whether a home purchase is worth it financially. Also, how much to renovate a house, and at which maximum price the house should be purchased to allow room for profit and unexpected costs.

What Does After Repair Value or ARV Mean?

What does ARV mean? The simple ARV definition is the estimated value of a house after repairs. The value is the expected price — as opposed to the house’s current value — that a home may sell for. It factors in comparable sales (comps) after its current condition has been upgraded and repaired.

ARV is used by:

• Real estate investors
• House flippers
• Lenders
• Prospective home buyers

The ARV real estate meaning determines if a house is worth buying at a specific price when considering the cost of the repairs and the local real estate comps. The actual value of any property is realized once a sale has been made. So the best information for what dollar amount a particular property might sell for is to look at houses nearby that have recently sold.

The comps can be found by looking on the Multiple Listing Service (MLS). Appraisers and real estate agents can look on the MLS to see recently sold houses in the same area as the property in question. They make sure to compare houses that are similar or will be similar, in the case of a house that hasn’t been renovated yet.

Sales of houses of a similar build, age, and style and similar numbers of bedrooms, bathrooms, and square footage are compared to get an average sale price. Agents will look at comparable house sales over the last 90 days to get a current market snapshot.

After Repair Value vs. After Renovation Value vs. ARV

While slight differences exist in the terms ‘repair’ and ‘renovation,’ they are most often used interchangeably regarding ARV. Technically, renovations include repairs but also include upgrades and updates.

Repairs, strictly speaking, fix areas that are broken. For example, if the roof leaks, it will need to be repaired. However, after repair value and after renovation value generally refers to the same ARV term.

A home’s updates may include refreshing the paint, removing old and outdated aesthetics, and remodeling kitchens and bathrooms with old flooring and fixtures. For example, a kitchen with old appliances and outdated light fixtures doesn’t necessarily need repairing, but it could use updating to include more modern appliances and fixtures.

How To Calculate After Repair Value

Accurately calculating ARV requires knowing a few numbers. You will need the following:

• An estimate of the costs of the renovations
• The value the renovations will add
• Either the current value of the house or the expected price based on comparable sales

The way to look at ARV could depend on whether you currently own the house and need to make repairs or if you are considering buying a house to renovate. If you own the home, you can appraise it to find the current value. Then, you can add the value of the renovations to get the ARV:

ARV = current value + value of renovations

You can find both the house’s current value and the renovations’ value by working with an appraiser. Appraisers will give you the current value and list how they determined it. 

For example, an appraiser may estimate that replacing an old roof has a value of $5,000. That tells you the value of the roof repair is $5,000. That doesn’t necessarily mean the renovation cost will be $5,000, but rather that the value of that renovation will increase the home’s overall value by $5,000. The actual repair may cost more or less than this $5,000 amount.

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Alternatively, you may be an investor or flipper looking to purchase a house that needs renovations. For this ARV calculation, you need to know the comps and the square footage of the property:

ARV = average square foot price of comparable properties × the property’s square footage

How ARV Works

The ARV concept is simple. It is the value of a house after repairs. It is essential to get an accurate ARV, or you may end up selling your renovated home for less than you had planned, leaving less profit.

Calculating the correct ARV may require either hiring an appraiser or using the expertise of a real estate agent familiar with the local market and able to look at the MLS to see the local comps.

Assessing the Value of Renovations

Estimating the value of renovations can be a tricky yet important aspect of figuring out how to determine ARV. It can be difficult to estimate renovation costs when the costs of materials and labor fluctuate or even, as we have seen recently, steadily rise. That’s why you may have to make the best guess at how much a particular renovation will increase the current value of a house based on the local real estate market.

Many different types of renovations can be completed on a house. Houses could need:

• Roofing repairs or replacements
• Square footage additions
• New kitchens and bathrooms
• Modern appliances
• Structural repairs like foundation repair
• Paint and cosmetic updates

These are just a few examples of potential renovations, all of which will depend on the particular property and its level of disrepair. 

How much do renovations increase home value? The answer to that question will depend on the specific renovation and the local real estate market. 

The cost of renovations will not be entirely recovered, but some renovations can be recovered by over 90%, such as installing a new garage door.

Some renovations may bring less return than others and may even be detrimental to the home’s value. There are some repairs and renovations that may not be worth doing, whether they are too costly with no chance of a return on investment (ROI) or too much effort without much benefit — if any.

You should factor in the ability to get the renovations done at a good price to estimate your ROI. Otherwise, the repairs may be prohibitively expensive if you want the renovations and your overall investment in the house to pay off. That is one reason why investors and flippers use the 70% rule.

The 70% Rule

Investors, lenders, and flippers generally like to use the 70% rule when investing, lending money, or purchasing a house that needs extensive renovations. The 70% rule means that you would make an offer of the ARV multiplied by 70% (0.70) minus the expected repair costs.

For example, the ARV of a house is $100,000, and the expected repairs will cost $20,000. In that example, you multiply the ARV by 0.70 and get $70,000:

$100,000×0.70 = $70,000

Next, you would subtract the expected repair costs from that number to get $50,000, which should be the highest you would offer for this particular property:

$70,000-$20,000 = $50,000

This assumes you are using the 70% rule, which market conditions may not always support.

This rule ensures a buffer zone that can withstand an unexpectedly high renovation cost or a low appraisal or purchase price when you sell the house.

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The 70% rule allows investors to factor in the profit they want to make from the investment while covering closing costs and unexpected expenses or an ultimately low sale price after they renovate the house and put it on the market.

This rule is also used by banks and hard money lenders who lend money to the flippers to purchase and renovate a property. They may not lend money for the purchase if the property can’t be bought for 70% of the ARV or lower.

A borrower can determine how much they may be able to borrow for a renovation or construction loan by calculating the ARV and multiplying that number by 70%.

Some Examples: Before and After House Renovation Values

The above sections detailed how ARV works, assessing the value of renovations and using the 70% rule to limit the potential bid or offer on the property. Those details can be put in perspective, as shown in the following hypothetical examples.

Example One

A house that needs a lot of work may be listed on the market. Because it needs extensive repairs, the house is listed at $180,000, which is lower than houses in the neighborhood have been selling for. That is the value before renovations.

If you or your agent look at the local comps and find that comparable houses in good condition sell for around $300,000, then that number is the ARV.

If you use the 70% rule, you would multiply the ARV by 70% and get $210,000:

$300,000×0.7=$210,000

The next step is to calculate the total expected renovation costs accurately. This house may need a new roof, which will cost $10,000, and a new kitchen, which is estimated to cost $20,000. The total repairs are estimated to cost $30,000.

You have determined you will need $30,000 for repairs, so you would subtract that from 70% of the ARV:

$210,000-$30,000=$180,000

In this example, the list price is right on the money when using the 70% rule, and the seller might get an offer for the asking price.

Example Two

In another example, a severely damaged house may be listed in a similar neighborhood for $250,000. The comps are about $300,000, making that number the ARV. Renovations are estimated to cost $100,000. Using the 70% rule, you would get $210,000:

$300,000×0.7=$210,000

After subtracting repair costs, you are left with $110,000, which is the highest you will offer on that particular house:

$210,000-$100,000=$110,000

When the highest you want to offer is lower than the asking price, you would need to negotiate to get the buyer to accept a lower offer, or you may want to pass on the property.

Things To Keep in Mind When Calculating ARV

Consider some key points about how to determine ARV when it comes to finding, fixing, and selling a renovated property:

• Knowing how to calculate ARV comes down to understanding a property’s comps.
• If you can accurately figure out how to estimate a home renovation, you may have a higher chance of staying under budget.
• The 70% rule may only sometimes work in some markets, so you may need to adjust your offer to get the property.
• ARV is only a current estimate, as the house’s value could change by the time it sells.
• Overestimating the ARV can result in less room for error when renovating and lowering profit margins.
• Some renovations can be costly, and some may hurt the home’s value.

Final Thoughts on ARV

Calculating a property’s ARV can help you to decide on purchasing a house that needs extensive repairs. If the house is considerably discounted and you know the estimated costs of the repairs needed, you should make an offer of 70% of the estimated ARV of the house. That way, you can be confident there will be enough room for unexpected costs as well as profit when you sell the home.

The critical factors you need to know are the:

• Local comparable sales
• The extent of the damage and what needs to be repaired
• Estimated costs of the repairs and the value of the renovations

Knowing the ARV is just one of many aspects of real estate investing and flipping houses. Whether you’re an investor, flipper, or homeowner, you will need a simple platform to find the best agents to assist you with calculating the ARV of potential properties and ultimately help you sell your renovated home.

You can quickly find the best local real estate agents on FastExpert to help you with your house sale — and help you get the most value for your extensive renovation efforts.

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