Real Estate Glossary
ARV Formula: How to Calculate It (With Examples)
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Definition
The ARV formula estimates the after-repair value of a property by analyzing comparable recent sales of similar properties in fully renovated condition. Investors use the ARV formula to determine whether a distressed property deal offers sufficient margin for profit, and lenders use it to size hard money or renovation loans.
The ARV Formula Formula
Variables explained:
Comps are recently sold (within 90 days, within 0.5 miles) properties similar in size, style, and condition to your property after renovation. Average their price per square foot, then multiply by your property's square footage to estimate its post-renovation value. Adjust up or down for meaningful differences (extra bathrooms, updated kitchen, lot size).
ARV Formula Example
Three comparable renovated homes in the target neighborhood sold at $175/sqft, $182/sqft, and $179/sqft. Average = $178.67/sqft. Your property is 1,400 sqft. ARV = $178.67 × 1,400 = $250,138. Rounded to $250,000. Maximum purchase price (70% rule): $250,000 × 0.70 − $45,000 (repairs) = $130,000.
Why ARV Formula Matters for Investors
The ARV formula is the foundation of every fix-and-flip and BRRRR deal. Getting it right determines profitability; getting it wrong (overestimating ARV) is the primary cause of failed flips. Professional investors often run ARV independently, verify with a real estate agent, and confirm with a formal appraisal before closing.
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Frequently Asked Questions
How many comps do I need for ARV?
A minimum of 3, ideally 5–6. If the neighborhood is sparse on sales, you may need to expand the search radius to 1 mile or extend the time frame to 6 months — but note the result becomes less reliable.
What adjustments should I make to comps?
Adjust for significant differences: +/- for extra bathrooms (~$10,000–$15,000 each), garage (+$15,000–$25,000), pool, lot size, and condition. Minor cosmetic differences typically require small adjustments.
How accurate is the ARV formula?
In active markets with many similar sales, ARV estimates can be within 5–10%. In thin markets with few comps, accuracy degrades. Always build in a margin of safety (the 70% rule already does this).
Can ARV be higher than market price?
In a rising market or after significant value-add renovations, yes. ARV reflects what the market will pay for the fully improved property — which can exceed what similar un-renovated properties are selling for.
Related Terms
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