After-repair value is the projected market value of a property after renovation. Every investment decision in house flipping flows from this single number.
The formula:
ARV = Average of Comparable Sold Properties (post-renovation condition)
The calculation is not a formula in the mathematical sense. It is a comp-based estimate. Here is the process:
Step 1: Define your subject property's post-rehab specs
- Bedrooms, bathrooms, square footage
- Renovation scope (cosmetic vs structural)
- Target finish level
Step 2: Find 3-5 sold comps
- Within 0.5 miles (1 mile max)
- Sold within 90 days (180 days max)
- Similar bed/bath count (±1)
- Similar square footage (±20%)
- Similar condition to your post-rehab target
Step 3: Adjust for differences
- Extra bathroom: +$5,000 to +$15,000
- Garage vs no garage: +$8,000 to +$15,000
- Basement finished vs unfinished: +$10,000 to +$25,000
- Per sq ft for size difference: $50-$150/sqft
Step 4: Average adjusted comp prices = ARV
Worked example
Subject property: 3-bed/1-bath, 1,200 sqft Cleveland Heights. Post-rehab: updated kitchen, new flooring, fresh paint. No structural changes.
Comp 1: 3/1, 1,150 sqft, sold $172,000 — similar condition → $172,000
Comp 2: 3/2, 1,300 sqft, sold $195,000 — extra bath, larger → $195,000 - $8,000 (bath) - $7,500 (size) = $179,500
Comp 3: 3/1, 1,180 sqft, sold $168,000 — slightly dated → $168,000 + $5,000 (condition) = $173,000
Comp 4: 3/1, 1,250 sqft, sold $182,000 — garage → $182,000 - $10,000 (garage) = $172,000
Comp 5: 3/2, 1,400 sqft, sold $205,000 — extra bath, larger → $205,000 - $8,000 - $15,000 = $182,000
Adjusted average: ($172,000 + $179,500 + $173,000 + $172,000 + $182,000) / 5
ARV = $175,700
Round to $176,000.
From ARV to max offer
The 70% rule:
Max Offer = ARV × 70% − Rehab Cost
Max Offer = $176,000 × 0.70 − $35,000
Max Offer = $123,200 − $35,000
Max Offer = $88,200
If the asking price is above $88,200, the deal does not have enough margin at standard flip economics. Either negotiate down or walk.
The two comp mistakes that destroy ARV accuracy
Mistake 1: Using active listings instead of sold comps
Active listings = what sellers hope to get
Sold comps = what buyers actually paid
Active listings average 5-10% higher than sold prices
Mistake 2: Using comps from a different neighborhood tier
A comp 0.8 miles away in a better school district
can be $20,000-$50,000 higher than your subject
Same distance. Different market. Wrong ARV.
ARV is a comp-based estimate, not a formula output. The quality of the estimate depends entirely on the quality of the comps you select.
