I was wondering exactly how most people come up the the ARV on a rehab home. I would imagine you can check the comparible/recent sales, but how do you know what condition each house was on the inside at the time of purchase? Is it done by an appraiser if you are looking to get financing based on a % of the ARV?
If your going to a lender to finance your rehab, the ARV will be determined by an appraiser.
You do use comps to determine the ARV just like you would any other house. The condition of the comps are irrelevant. If the neighborhood is all in bad shape, it won’t matter if you put as much marble in the house as a Saddam Hussein palace, because it’s only going to be worth what the market will bear. If you are looking at recent sales that were in uncharacteristically bad condition at the time of purchase, that wouldn’t be a good comp to use. It’s only a comp if it’s “comparable” to the subject, in this case the subject’s potential. Stay within the guidelines of the neighborhood and you won’t have a problem.
Typically if the property is in bad condition (uncharacteristic of the area) the realtor will add that to the listing and the eventually sales price will be lower than the area’s norm.
Thanks Danny. I was wondering mostly for financing upfront and to get an accurate market value if a refi to cash out was needed after a short term HML.