# How To Figure ARV

I’m a newbie learning about Wholesaling. Can someone please explain to me how to figure out the After Repair Value. I know it’s the value of the home after repairs, but where do all the numbers come from? Is it the current value of the home plus the estimated costs of repairs? Thank you!!

Bernard

From what I understand, the ARV is just the comparable value of what the house will sell after repairs. In other words, it is just the value of what the house will sell for.

Example:
Recent Comps of a property:
House 1 = 120k
House 2 = 130k
House 3 = 135k

ARV = 128k

You should then base your offer on the ARV of the property (i.e), if the property needs 20k in repairs. Your offer should be 128 (ARV) * 70% - 20(Repairs) = 69k (Your Maximum Offer)

-Edgar

The only factor I would add is make sure you are getting “real” comps. They should be basically the same type of property as the subject property. They should also be as close as possible. I would try to stay within 1/2 mile if at all possible. Also, make sure they are recent comps. I would try not to go over 6 months.

Peter

Thanks to both of you!! But I need to ask Edgar: The 3 different comps you posted: are they for 3 different houses or just 1 house. Second: how did you come up with an ARV of 128k? Did that number come from the comps? Lastly: how can I get free comps online? I really appreciate this help!!

To answer your questions:

1. 128k is just an average of the three houses.
2. The numbers are from different houses.
3. Free comps? Zillow.com, yahoo.com, realtor.com, etc.

Lastly, I DEFINITELY agree with peterv, stay within the subject property to make comps.

-Edgar

THANK YOU VERY MUCH!!

That was a good break down Edgar!

good reply edgar but my question is are you talking about 3 houses that are near each other or in the comparable sales if you went to zillow.com and clicked on comparable sales? that is where im confused at.

Thanks

HE is getting the 128 from averaging the 3 different prices for 3 different homes in the immediate same area.

One important point to make, and I can say this is from actual experience; most investors (your buyer) will shun publicly accessed comps. The website comps are most times unrealistic, very vague, and inaccurate.

I get around this problem because I have a VERY close RE agent who runs actual comps on the property. If you have this same blessing in your life…you can save a lot of time and get more accurate figures to base your numbers on.

I’ve had problems with getting ARVs accepted by local investors. They seem to want to use the last sale (if it’s the lowest) and ignore everything else. Whatever happened to using median prices or throwing out out the highest and lowest figures? Zillow is good if you just use the actual sales figures and not their estimate or range. Your local county tax assesssor will usually have neighborhood sales figures. MLS comps will many times favor retail sales and not show other sales to investors. For that reason MLS comps will probably be unrealistically high.

One other free service that investors use and speak highly of if they dont go for a pay service like realquest is cyberhomes.com. Most have said if they had to use a free service they would use cyberhomes.

DemosL,

I hear ya. That’s why I’m now wholesaling to owner occupants. Way easier, I’m making more money, and I don’t have to deal with another investor trying to screw around with me with price. I’ve been wholesaling to O-O for about 16 months now. Rarely do I wholesale to investors anymore. Maybe try that out?

Nate-WI

In most cases after repair value is going to be very similar to the Current Market Value of the home if it were in good repair.

I would recommend not only pulling comps, but also pulling current listings to see what the competition is.

Good luck

It all depends… I’ve seen wholesalers trying to off properties using the highest comp + 5% using the lowest repair costs (landlord rehab costs). this won’t fly.

Comps are just an idea of what the house might be worth in the current market. The closer you stay from the subject property, the better idea you get of its value. When realtors price houses, they look at what was sold in the past few months within that neighborhood, and if possible, same style house. If the house has more extras and picture perfect, they may take the risk pump it up a little thinking a buyer would be willing to bay little extra for the extra features.

so when you are doing your comps, see if the houses you are comparing yours to are good comparison to yours fixed up. If you are in a declining market, you need to take that into account… if you want to use the highest comps, then use the highest repair cost. If using the lower comps, use the lower repair costs or average.

The bottom line is, will this house sell for this price? you need to base in on whats on the market. Best way to valuate your numbers is to look and see what the listed homes are selling for… is your house priced above that, at same price, or lower? keep in mind that listed homes may sit on market for a while and hardly sell for asking now a days so you better not be above if selling traditionally :0

As far as comp sites goes, get the darn license and get over it. I know this is a big debate here, but there is no substitute for MLS comps. zillow, yahoo (which uses zillow), and the other sites are just estimates. I’ve seen them way off before. One street over could change the price by thousands due to its condition.
If you are in state like Texas, which is non-disclosure state then you won’t get real comps unless you use mls or appraiser.

ARV gets really tricky and you must be careful in a down market. The bottom of sales may be made up of REO and shortsales which are NOT your competition. Pick and area you plan to invest and get to know it VERY well. What’s selling? What expires? What stays active for a long time? If something sells, why? ARV can be very different in every zip code depending on the short sales/REO to resale ration and overall condition of neighborhood.

My advice, hook up with a great Realtor or appraiser in your area. This might take some time but is extremely important. Comps alone won’t tell you the entire story.

Most rehab lender will do 65 to 80 ARV (After Repair Value) Here is the calculation: Offer= (ARV x 75%) - (Repairs + Holding + Closing cost)

Johnny Q,

I thought the holding and closing costs were included in the 75% figure or any figure that rehabbers use to multiply the ARV with.

Buying Closing Costs: 3%
Selling Closing Costs: 4%
Holding Costs: 6%
HML Points: 3% (range from 0 to 5 or more depending on interest and length)
Marketing Property: 1%
OR
Realtor: 6%
Utilities: 2%

You need to understand the numbers, not just the formula…