Understanding After Repair Value (ARV) and How It Impacts the Price of Your Home

In the world of home renovations, fair isn't determined by how good we are with a hammer; it's determined by will the math pencil for all parties involved. The seller, the investor, and the buyer.

The single most critical number in the investor equation is ARV: After Repair Value. This number is based on how much is needed to invest in a home to sell at market value and why offers from investors might be lower-than-expected.

The entire concept of wholesale is hard for us, but it is a necessary element of our business. We approach every revitalization project not as a guess, but as a marriage of art and science. One part numbers and one part understanding the situation. And every aspect of this it weighs on our minds. We want what's fair for everyone.

For us, understanding the exact, conservative ARV is the foundation of the work that we do in Northern Virginia. We don't want McMansions built in our neighborhoods that stand out like sore thumbs. No offense to the builders that are churning those out. We want the houses that were originally built, but just with a little TLC. However the numbers have to work for us to get underwriting and be able to move forward.

Here is how we think about ARV, why it’s the metric that determines if we can buy a house, and why it is helpful to understand this number.

What Exactly is ARV?

After Repair Value (ARV) is the estimated fair market value of a property after all renovations, repairs, and upgrades have been fully completed. It is not what we hope the house will sell for, or what Zillow suggests it could be worth; it is a calculated ceiling based on rigorous data analysis.

The Formula for Acquisition Success

We don't use the ARV just to project profit; we use it to dictate our purchase price. To meet our benchmarks and underwriting which requires us to pencil backwards from the expected ARV.

The core formula for this to work for everyone looks something like this:

(After Repair Value) - (Rehab Costs + Holding Costs + Profit Margin) = Maximum Purchase Price

If we miscalculate the ARV—by even 5%—we have effectively eroded our ability to continue in this business.

How to Calculate a Real ARV

And in this process, we roll-up our sleeves and pull our own manual comparables (comps) of sold properties and determine what our investment can be.

Here is some elements of how we define the ARV:

• The Comparable "Sold" Only: We only look at properties that have actually sold in the past 3-6 months in your neighborhood. A list price doesn't work for the bank; the actual sold prices do.

• Aesthetic Alignment: And those comps must look, feel, and flow like our finished product will. This makes the science even more important.

• Hyper-Local Focus: These comps must be within the same neighborhood, ideally the same elementary school district, and closed within the last 3-months (or 6-months in slower markets).

• Standardize the Variables: And these comparables have to be similar square footage (+/- 15%), bedroom/bathroom count, lot size, and key amenities.

This is why it's incredibly difficult and why you might get a lower offer on your home when you go to sell it to a renovator like us. We'll do our best to make sure that we're transparent and honest. And fair.