After-repair value (ARV) - what a property will be worth once renovated - is the number that decides whether a deal works. It is estimated with a comparable sales (comps) analysis: finding recently sold, similar properties nearby and adjusting for the differences. Get the comps wrong and every other number in the deal, from renovation budget to offer price, is built on a bad foundation.
| Location | Same neighborhood or a genuinely comparable one - not just the same city |
|---|---|
| Sale recency | Ideally within the last 3-6 months; older sales need a market-trend adjustment |
| Condition at sale | Renovated-to-renovated for an ARV comp, not a distressed sale compared to a finished flip |
| Size and configuration | Similar living area, bed/bath count - adjusted, not ignored, when they differ |
A property that sold recently (generally within the last three to six months, longer only with a documented market adjustment), is physically similar in size and configuration, sits in the same or a genuinely comparable location, and - critically for an ARV estimate - was in comparable finished condition at the time it sold. Comparing a renovation target’s ARV to a distressed sale nearby understates it; comparing it to a luxury renovation overstates it.
Three to six solid comps generally produce a more defensible number than one or two, especially when they cluster around a similar price rather than spreading widely.
By assigning a dollar value to each material difference - extra bedroom, extra bathroom, larger living area, a pool, garage versus carport - and adding or subtracting it from the comp’s sale price to estimate what that comp would have sold for if it matched the subject property. Local price-per-square-foot and per-bedroom adjustment values come from studying enough recent sales in the specific area to see what the market actually pays for each feature there.
The size of a reasonable adjustment is itself local - what an extra bedroom is worth varies significantly by neighborhood and price point, so an adjustment pulled from a national rule of thumb is a weaker foundation than one derived from comps in the same immediate area.
There is no fixed rule, but a widely used practical target is three or more genuinely comparable, recent sales, ideally within a half-mile to one mile depending on how dense and consistent the surrounding market is. In a dense urban submarket, a much tighter radius produces better comps; in a rural county, the search radius has to widen to find enough sales at all.
Crossing into a meaningfully different neighborhood, school zone, or price tier to hit a comp count is a common mistake - a comp that is technically nearby but not actually comparable weakens the estimate rather than strengthening it.
Anchoring to the highest recent sale nearby rather than the median of a genuinely comparable set - especially when that high sale had upgrades, a better lot, or simply sold in a hotter month. A single standout comp should widen the estimate’s range, not become the estimate.
The second most common mistake is using active listing prices as comps instead of actual closed sale prices. What a seller is asking is not what the market paid; only closed, recorded sales tell you that.
ARV sets the ceiling; renovation cost and desired margin work backward from it to the maximum offer. A common framework - not a guarantee of profitability - is Maximum Offer = (ARV x a target percentage, often discussed around 70%) minus estimated renovation cost, leaving room for closing costs, holding costs, and profit.
UNVERIFIED: the ‘70% rule’ referenced above is an industry rule of thumb, not a fixed standard, and the right percentage for a specific market and deal type varies - treat it as a starting framework to adjust, not a formula to apply blindly.
Official record - living area, year built, lot size - anchors the physical facts used to select and adjust comps: you are comparing against the subject property’s actual documented size and characteristics, not a guess. It does not replace comps for arriving at a value; the record establishes what the subject property is, comps establish what similar properties are worth.
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