What ARV actually is
ARV — after-repair value — is what the property will be worth once your renovation is complete, supported by sales of comparable renovated homes. It is not what you hope to list it for, not Zillow's estimate plus your rehab budget, and not purchase price plus renovation cost. A $200,000 house plus $50,000 of work is worth whatever renovated comps say it's worth — which might be $310,000 or might be $260,000.
ARV is the single most leveraged number in a flip. It drives your maximum offer, your loan size, your exit price, and your margin. Get it 10% wrong and you can erase 100% of your profit — the worked example below shows exactly how.
How ARV drives every flip loan
Lenders size fix-and-flip and bridge loans against two ceilings at once, and you get the smaller of the two:
- Loan-to-ARV cap — most flip lenders will lend up to roughly 65–75% of ARV, all-in (purchase plus rehab draws).
- Loan-to-cost (LTC) cap — commonly 80–90% of purchase price plus 100% of the rehab budget, funded in draws as work completes.
Investors use the same logic in the classic 70% rule: maximum offer = (ARV × 0.70) − rehab cost. It bakes in your financing costs, selling costs, and profit margin in one blunt haircut. Blunt, but it exists because thin flip margins get eaten by exactly those costs.
How appraisers compute as-repaired value
Flip lenders order a subject-to appraisal — a valuation "subject to completion" of your renovation. Three things drive it:
Your scope of work is the blueprint
The appraiser values the property as if your submitted scope is finished. A vague scope ("update kitchen, refresh baths") gets a conservative appraisal. A detailed, line-itemed scope with finishes specified lets the appraiser confidently comp against fully renovated sales. Weak scope in, weak ARV out.
Comp selection does the heavy lifting
The appraiser pulls recent sales of renovated homes similar to your finished product — same bed/bath count, similar square footage, similar condition, close by, sold recently. If genuinely renovated comps don't exist nearby, expect the value to come in cautious.
Adjustments fill the gaps
Differences in size, garage, lot, and condition get dollar adjustments. The more adjusting required, the shakier the number — which is why lenders scrutinize appraisals built on stretched comps.
How lenders pressure-test your ARV
Sophisticated lenders don't just accept the appraisal. They run their own automated valuations and comp checks, and comp variance triggers a second look: if the appraisal lands well above the model value, or the comps are older, farther, or bigger than yours, expect a review appraisal, a cut ARV, or a reduced advance. Some lenders cap how much of the value can come from adjustments. If your deal only works at the top of the appraisal range, the lender's haircut — not the market — may kill it first. This is one place hard money and institutional bridge lenders genuinely differ: local hard money may take a view on a block they know; national lenders trust the model.
Comping honestly: the discipline
Pull your own comps before you offer, using the same discipline an appraiser will:
- Same beds/baths — a 3/2 does not comp against a 4/3.
- Square footage within ~15–20% — and never let price-per-foot from a much smaller home inflate a bigger one.
- Same condition as your finished product — renovated comps only. An unrenovated sale tells you your purchase price, not your ARV.
- Distance — ideally the same subdivision or within about half a mile, never across a school boundary, highway, or price cliff.
- Recency — sold in the last 3–6 months. Pending sales are a hint; closed sales are evidence.
- Use the middle, not the peak — if renovated comps closed at $295K, $305K, and $340K, your ARV is not $340K. That outlier had something yours doesn't.
Worked example: how ARV optimism destroys the margin
Say you find a tired 3/2. Purchase $200,000, rehab budget $50,000, and you believe ARV is $340,000 because one stunning flip up the street closed there.
| Line item | Your pro forma (ARV $340K) | Reality (ARV $305K) |
|---|---|---|
| Sale price | $340,000 | $305,000 |
| Purchase | −$200,000 | −$200,000 |
| Rehab | −$50,000 | −$50,000 |
| Financing costs (~6 months) | −$15,000 | −$15,000 |
| Selling costs (~7%) | −$23,800 | −$21,350 |
| Profit | $51,200 | $18,650 |
A 10% miss on ARV cut profit by nearly two-thirds — and that's with the rehab on budget and on schedule, which it rarely is. Add a $10,000 rehab overrun and two extra months of carry and you're under $3,000 for six-plus months of work and risk. Check the 70% rule: ($305,000 × 0.70) − $50,000 = $163,500 max offer. You paid $200,000. The rule flagged this deal from day one; the optimistic ARV is what made it look fine.
ARV in BRRRR refinances
ARV isn't just a flip number. In the BRRRR method, your after-repair value becomes the appraised value your refinance lender lends against — typically up to 70–75% of it on a DSCR cash-out refi, once you clear seasoning. If ARV comes in low, you leave capital trapped in the deal instead of recycling it into the next one. Same number, same discipline, different exit: flippers get punished at sale, BRRRR investors get punished at the refi appraisal. Comp honestly either way, and underwrite the deal at the conservative end of your comp range. If it only works at the top, it doesn't work.
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