What Is ARV (After-Repair Value)?

Short answer

ARV (after-repair value) is the estimated market value of a property once planned renovations are complete, based on recent sales of comparable renovated homes nearby. Fix-and-flip and hard money lenders use it to cap the loan, commonly at 65% to 75% of ARV, and investors use it to decide what they can pay. The appraiser produces it from the plans and budget as a 'subject to completion' value.

Definition

ARV is a forward-looking appraisal value that assumes the renovation is finished to the described scope. It drives the maximum loan on a renovation loan and the profit math on a flip.

Worked example

Renovated three-bedroom homes in Westchester are selling for $620,000 to $650,000. An investor estimates an ARV of $630,000 for a dated house listed at $410,000 that needs $95,000 of work. The 70% rule: maximum purchase price = ($630,000 x 0.70) - $95,000 = $441,000 - $95,000 = $346,000. The $410,000 list price is too high by that rule; she offers $350,000. Lender math: the hard money lender caps the loan at 70% of ARV, or $441,000, and separately at 90% of cost ($350,000 + $95,000 = $445,000 x 0.90 = $400,500). The lower of the two, $400,500, is the loan, so she needs $44,500 plus closing costs and reserves. Sale at $630,000 minus $445,000 cost, about $40,000 of financing and $50,000 of selling costs leaves roughly $95,000 before taxes.

How lenders use ARV

• Loan-to-ARV cap: often 65% to 75%; the loan including rehab funds cannot exceed it.
• Loan-to-cost cap: a separate limit on purchase plus rehab, often 85% to 90%; the lower of the two limits governs.
• Draws: rehab funds are released in stages after inspections.
• Exit: the lender wants to see that the ARV supports a sale or a DSCR refinance that pays off the loan.

Estimating ARV well

Use sold comparables from the last three to six months within a half mile, renovated to the same level, similar size and bed/bath count. Adjust for pool, garage, lot and flood zone. Do not use list prices. Get a contractor's bid for the budget and add 10% to 15% contingency. See fix and flip loans and hard money loans.

In South Florida

Miami ARVs are sensitive to things out-of-town investors miss: the value of impact windows and a new roof to insurance costs, flood zone and elevation, whether past additions were permitted (unpermitted square footage may be excluded by the appraiser), and block-by-block differences in neighborhoods like Shenandoah, Little River and North Miami. Appraisers here also want a detailed scope of work and contractor bids to support the ARV, and the final draw usually depends on a completion inspection. Conservative ARVs protect you when the market softens.